D3 Portfolio Update:
We have finished reviewing our Asset Allocation Models: We have incorporated strategists viewpoints from the various fund companies we utilize. (Goldman, Pimco, Vanguard, Fidelity, Blackrock, DWS, etc.). Additionally we have incorporated insights from prominent economists such as Dr. David Kelly (JPM), Nancy Lazar (formerly with ISI), Austin Goolsbee (former chairman of President Obama’s Council of Economic Advisors), and our own client Paul Kasriel (retired Senior Economist of Northern Trust Company).
After having compiled and synthesized this information, we have decided to make some minor changes to our asset allocation models (these are summarized below under investment strategy). For clients with custom asset allocations due to their unique financial planning circumstances or limitations of your retirement accounts we have maintained your previous model. Please contact us if your investment situation has changed and you want us to incorporate our model changes described below.
We have also finished the review of all of the mutual funds, exchange traded funds and index funds in our client’s portfolios. We have decided to move out of some products that have not met our risk/reward and expense ratio criteria.
Our perspective is that the global economy will continue to grow at a steady pace. The U.S. and the rest of the developed economies will be the primary drivers of this growth. This is in contrast to the last several years when the emerging markets were the primary drivers of global economic growth. It appears that some of the emerging markets will experience stagflation (India, Indonesia, Brazil, etc.).
Due to the strength of the U.S. economy, we anticipate higher interest rates, but not dramatically so. The Federal Reserve will continue to taper but some of this is likely already priced into the market.
Although the U.S. equity markets are valued slightly higher than long term historic averages, we believe they have more room to run. This is due to continued low inflation, lower operating costs (especially energy and health care), relative value to bonds, good demographics, significant cash sitting on the investment sidelines and a lower supply of equities in general.
The European markets are undervalued relative to the U.S. markets (reflecting their slower growth and structural issues). But it appears that the EU economy is finally starting to growing. Additionally European companies pay higher dividends than U.S. companies which will continue to attract investors looking for cash flow.
For the reasons outline above, we have made minor 5% changes to our asset allocation models. Specifically we have reduced the Income and Equity Income (interest sensitive) asset classes and increased either International Developed and/or Large Cap Value (based on the model). The details of these changes are summarized on the attached PDF.
We also added on the attached PDF the modern portfolio statistics (return, standard deviation and value at risk) for the indexes we use to track the asset classes in our allocation models. Please call Don or Adam if you have any questions about this information.
We also decided to change the asset class for both private and publicly traded REITs to the Alternative asset class from the Income asset class. We have determined that this move better captures the risk/reward characteristics of these investments.
Starting next week we will be implementing these changes in your portfolios. Our purpose is to increase the probability of our clients achieving their required rate of return, better manage risk and if possible minimize taxes and transaction fees. You will see trades in your accounts starting Tuesday, Wednesday and Thursday. For some of you where we have increased exposure to the Alternative asset class by purchasing private REITS, we will be sending you a purchase agreement in the mail.
Sharon Wallyn has joined D3 to help us out with new business development. She is also a client of D3. If you know someone whom you think could benefit from our services, Sharon is eager to contact them.
Kyle Grabenstetter has joined D3 as a junior planner in our Financial Planning Management Development Program. Kyle recently graduated from Texas Tech University with a masters in Financial Planning. You will be hearing from him soon.
Have a prosperous 2014!
Don Duncan MBA CPA CFA™ CFP® Patty Shipinski, Office Manager RP®
Adam Glassberg CFP® CIMA® Sharon Wallyn, Business Development
Michael Meyers MBA CFP® Kyle Grabenstetter, Jr Financial Planner
Ryan Pace CFP®
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