CTWM August 2015 Investment CommitteeSubmitted by Connecticut Wealth Management, LLC on August 21st, 2015
The stock and bond markets, both US and foreign, have become increasingly challenging to navigate over the past year, much more so within the past month, and even more over the last few days.
Even though the slowdown in China is something we have been monitoring closely for a while (and is a reason why we have had a reduced allocation to emerging markets), we are looking at this recent pullback related to China as a possible buying opportunity if the magnitude of the drawdown exceeds what we think is commensurate with the economic data being released.
In that regard, our Investment Committee continues to meet monthly to discuss how to best implement strategies in a thoughtful and pragmatic manner that will maximize your gains. We continually evaluate, with the support and assistance of LPL’s extensive research department, both the types of stocks and bonds to which we are allocating, as well as the specific managers we use to access these asset classes.
At our most recent Investment Committee meeting the members voted to eliminate the Wasatch Long/Short fund and to reinvest the proceeds into the MFS Research fund. The Committee’s conclusions were based on the following:
- We initially decided to invest in Wasatch because this type of fund is designed to access the stock market without taking on the risk typically associated with stocks.
- More recently, the fund has concentrated its positions to the point where we are no longer comfortable using it in client portfolios. Specifically, they have invested heavily in energy companies, and while the long term prospects for this sector may be attractive, it appears that the fund’s strategy has shifted towards more risk.
- We chose to replace this investment with an investment into large U.S. stocks, an asset class where we continue to see the best risk-return tradeoff. Other types of stocks (i.e. developed international and emerging markets) may offer a higher upside but have shown too much volatility in recent months.
- We chose a mutual fund that employs “active management” to complement the passive approach we currently employ to access the large U.S stock allocation. We did so because, in contrast to the last several years, the current market and economic environment may be more conducive to rewarding stock pickers than it has been in the past. Also, we acknowledge that active management can provide more protection than an index fund can if market sentiments shift.
- Finally, we chose MFS Research because of its long term outperformance, its relatively low costs, and for its ability to allocate within the spectrum of domestic large cap stocks.
As always, you can rely on the fact that when we identify a situation where we think portfolios can be more effectively allocated, we will make the change right away. Regardless of market conditions, we will remain vigilant and active, managing your investments in the most prudent manner possible.
Please contact us with any questions.