Portfolio Performance Reports: We are in the process of reconciling all of your investment accounts through December 31st. We should complete this reconciliation process by the middle of January and will load onto your portal the portfolio performance reports before the end of the month. We will email you a notification when they are on your portal.
Sharon Wallyn, our part-time business development assistant, has determined she would like to work more hours. Starting in 2017, Sharon will be assisting Patty with office management and administration. She will generally be working Monday, Wednesday and Friday out of the Chicago office. Say hello when she answers the phone.
Besides generating portfolio performance reports this month, we have slightly revised our portfolio asset allocation models (more on this topic below). Also during January, we will be conducting our quarterly, internal review of all the funds we invest in. If funds no longer meet our risk/reward criteria, we will make those changes in February.
Please let us know if you are having any issues logging onto or navigating your D3 client portal. Please give the office a call and any of our staff will be able to assist you.
Each December we revisit our strategic asset allocation models trying to improve them based on our observations and convictions for the upcoming year. We always have more observations than convictions and these are listed below:
- Observation 1: The Republican-controlled government wants to revise the Affordable Care Act. This will generate uncertainty for the health care industry and health care stocks. Unless more debt is issued, it should be neutral for the bond market.
- Observation 2: The Republican-controlled government wants to reduce and, if possible, simplify taxes. This has generally been perceived as positive for the equity markets because the tax drag on corporate profits and personal wealth retention would be reduced. It will generally be perceived as negative for the bond market because the government will have less revenue for debt repayment.
- Observation 3: The Republican-controlled government wants to create an economic stimulus package in an attempt to accelerate U.S. gross domestic product (GDP). If successful, GDP will rise, company profits should rise and as a result, this will be perceived as positive for stocks. Because this could potentially increase inflation and the federal debt, this will generally be viewed negatively by the bond market.
- Observation 4: The Federal Reserve has publicly stated that they will raise short-term interest rates if the economy grows at a rate greater than 3%. This is viewed as a short-term negative for both stocks and bonds.
- Observation 5: The U.S. corporate profits recession appears to have ended in the third quarter of 2016. This coincided with oil prices and the U.S. dollar stabilizing in value. This is viewed as a positive for both stocks and bonds.
- Conviction 1: Short-term interest rates will rise in 2017.
Based upon these 5 observations and 1 conviction, we are making a minor change to our asset allocation models. We will be reducing the “Income” asset class exposure by 5% and increasing the “Alternative Income” asset class exposure by 5%. Our rational for this change reflects our view that short-term interest rates will rise and therefore it makes sense to increase exposure to assets that will not respond as negatively to rising interest rates, i.e. “Alternative Income”.
Click here to view the PDF that summarizes this minor change. The major change between our 2016 and 2017 models is that the expected return for the “Income” asset class is lower. This is directly related to our expectation for rising interest rates and the potential negative impact on the “Income” asset class.
For all clients with non-customized portfolio asset allocation models, during January we will be rebalancing your portfolios to our new asset allocation models. We will execute trades once we have completed all the rebalances.
For all clients with a custom asset allocation (i.e. model override), we will call you next week to see if you want to change your custom asset allocation model. If so, we will execute trades once we have completed all the rebalances. If you any questions about this, please call Don or Adam.
Diversification is the only way to lower risk and increase the probability of success.
Don’t hesitate to give us a call if you have any updates or concerns.
Happy and Prosperous New Year to all.