Investment Committee Meeting (August)

As part of our ongoing attention to global investment markets and trends on your behalf, we recently convened our triannual Investment Committee meeting(1). We want to share with you some of the high-level insights from the meeting and let you know some of the investment changes you may see, or be receiving recommendations on, in the coming two weeks.

Key insights:

  • The U.S. stock market is now in its longest bull market (a period without a decline of 20% or more), and we remain optimistic that the U.S. economy currently stands on reasonably strong footing. Headwinds to the U.S. economy continue to include worries of inflation and continued international trade posturing.

  • U.S. equities have had a boost from the strength of the U.S. dollar, which has also made foreign equity investment look less attractive.

  • While the FED (Federal Reserve Board) continues to gradually increase interest rates, current rates remain historically low. These attractive rates have disproportionally supported growth- oriented companies (vs. value-oriented companies), as they are more likely to take advantage of borrowing at the lower rates and investing the monies to grow their business.

  • U.S. political headlines have largely been shrugged off by the market, including Trump’s assertion that an impeachment would cause a recession (a view that is not supported by us or many economists).

  • Market volatility has returned to a level more representative of historic levels, and we do expect volatility to continue throughout the year.

  • Shorter-term bonds(2) continue to perform well in light of the FED’s (Federal Reserve Board) increases in interest rates. As suitable, we are overweighting shorter-term bonds in order to catch the potentially higher interest rates that we believe are likely to occur this year. We’re also able to find increased yield in some lower credit quality (where diversification is important for risk management) and foreign bond tools.

  • Intermediate-term and long-term bonds are more susceptible to decline in value in response to interest rate hikes, but provide an important ballast to your portfolio in times of volatility.

In light of the above observations, you may see trades over the coming two weeks (or investment recommendations) for the following adjustments as suitable:

  • Reallocating a foreign bond tool to a U.S. dollar-hedged foreign bond tool to take advantage of the divergent interest rates we see globally and the current strength of the U.S. dollar.

  • Selling some energy tools while oil is attractively priced, and investing the proceeds in an S&P 500 ETF tool.

  • Replacing a U.S. small cap(3) equity tool with a new U.S. small cap(3) equity tool that has historically outperformed in environments when value has underperformed growth (as we are seeing today).

  • Shifting some U.S. large cap(3) equities between growth-oriented and value-oriented companies for continued proper diversification.

  • In socially responsible investing (SRI) accounts, introducing equity tools that offer lower management costs.

Please let us know your questions and comments. We always appreciate hearing from you.

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(1) In total, the committee brings 100+ years combined total experience and leverages the global footprint of Raymond James Financial, as well as significant third party research. All LWP Wealth Managers and our Portfolio Analyst are members of the committee as well as consultants, Mark Carlton, CFA and John Mowery both of Trademark Financial Management, LLC. Trademark specializes in consulting with independent wealth management firms.

(2) Short-term bonds mature in 1-4 years. Intermediate-term bonds mature in 4-10 years. Long-term bonds mature in more than 10 years. From

(3) Market capitalization refers to the total dollar market value of a company's outstanding shares. It is calculated by multiplying a company's shares outstanding by the current market price of one share. Large-cap companies have a market capitalization of $10 billion or greater. Mid-cap companies are between $2 billion and $10 billion, and small-cap companies are under $2 billion.