1 THE GLOBAL INVESTMENT PULSE, September, 2018 September, 2018 Stock Market, continued on page 4 THE NEXT CRISIS COULD BE TRIGGERED BY PASSIVE INDEXING By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors One of the biggest risks right now is the explosion in passive indexing. Trillions of dollars have poured into products that track indices built not on fundamental factors like revenue, cash flow and return on invested capital (ROIC), but on simple market capi- talization. A piling on effect has occurred, whereby multibillion- dollar funds are buying more and more of the most expensive stocks. This has resulted in overinflated valuations. The big risk is when these funds rebalance, which could happen as early as the beginning of next year. For example, last year, junior mining stocks got crushed after the VanEck Vectors Junior Gold Miners ETF (GDXJ) restructured its portfolio. Imagine what could happen if all passive index funds did the same simultane- ously. Source: This article was excerpted from The Best Time To Prepare Is While The Bull Runs”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, September 24, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS PULSE NEXT 3 QUARTERS ARE USUALLY THE BEST FOR THE STOCK MARKET By Louis P. Stanasolovich, CFP ® , CCO, CEO and President of Legend Financial Advisors, Inc. ® and EmergingWealth Investment Management, Inc. ® T he mid-term elections are on Tuesday, November 6th, 2018. Historically, volatility has increased and markets have dipped leading up to mid-terms on uncertainty, but afterward they’ve outperformed regardless of who wins. The best news is that we’re entering the three most bullish quar- ters in the four-year presidential cycle. Based upon commonly known historical data, the fourth quarter of the President’s sec- BREAKOUT OR FAKE-OUT? By Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so. Only one intermediate market correction (1994, Chart 1 on the top of page 6) required a longer period to recoup its losses than this year’s. What’s most relevant, though, is not recovery time but the maturity and likely its vulnerability of this cycle. In particular, the “postcorrection” S&P 500 Normalized P/E on August 24th stood at 26.0x (times) earnings thirty per- cent higher than the median of 20x seen at postcorrection highs Breakout or Fake-Out?, continued on page 6 FEE-BASED, NOT FEE-ONLY, FINANCIAL ADVISORS ATTEMPT TO MISLEAD CONSUMERS By Louis P. Stanasolovich, CFP ® , CCO, CEO and President of Legend Financial Advisors, Inc. ® and EmergingWealth Investment Management, Inc. ® Back in the late 1980’s the public and media understood that there were three types of advisors: Commission-Only, Fee and Commission or Fee-Only. At that time, there was a movement among Fee and Commission advisors to separate themselves from the “commissions” stigma. As a result, they began calling themselves “Fee-Based” in order to sound as if they were simi- lar to Fee-Only advisors thereby misleading consumers who were seeking Fee-Only Advisors. Many people believe that the term, Fee-Based, is misleading because Fee-Based advisors often do not provide unbiased advice to their clients due to their recommending investment and insurance products which produce “additional compensation” in the form of commissions and/or product fees for them or their firm. In contrast to Fee-Based or Commission-Only advisors, Fee- Only advisors do not receive any commission-type compensa- tion whatsoever. In fact, many Fee-Only advisors such as the ones at Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. are fiduciaries. Fiduciaries are required by law to act in the client’s best interest at all times. COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC. ® PULSE
Transcript
1THE GLOBAL INVESTMENT PULSE, September, 2018
September, 2018
Stock Market, continued on page 4
THE NEXT CRISIS COULD BE TRIGGERED BY PASSIVE INDEXING
By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors
One of the biggest risks right now is the explosion in passive indexing. Trillions of dollars have poured into products that track indices built not on fundamental factors like revenue, cash flow and return on invested capital (ROIC), but on simple market capi-talization. A piling on effect has occurred, whereby multibillion-dollar funds are buying more and more of the most expensive stocks. This has resulted in overinflated valuations.
The big risk is when these funds rebalance, which could happen as early as the beginning of next year. For example, last year, junior mining stocks got crushed after the VanEck Vectors Junior Gold Miners ETF (GDXJ) restructured its portfolio. Imagine what could happen if all passive index funds did the same simultane-ously.
Source: This article was excerpted from The Best Time To Prepare Is While The Bull Runs”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, September 24, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORSREPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS
PULSE
NEXT 3 QUARTERS ARE USUALLY THE BEST FOR THE STOCK MARKET
By Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and
EmergingWealth Investment Management, Inc.®
The mid-term elections are on Tuesday, November 6th, 2018. Historically, volatility has increased and markets have dipped leading up to mid-terms on uncertainty, but afterward they’ve outperformed regardless of who wins.
The best news is that we’re entering the three most bullish quar-ters in the four-year presidential cycle. Based upon commonly known historical data, the fourth quarter of the President’s sec-
BREAKOUT OR FAKE-OUT?
By Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC
The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so. Only one intermediate market correction (1994, Chart 1 on the top of page 6) required a longer period to recoup its losses than this year’s. What’s most relevant, though, is not recovery time but the maturity and likely its vulnerability of this cycle. In particular, the “postcorrection” S&P 500 Normalized P/E on August 24th stood at 26.0x (times) earnings thirty per-cent higher than the median of 20x seen at postcorrection highs
Breakout or Fake-Out?, continued on page 6
FEE-BASED, NOT FEE-ONLY, FINANCIAL ADVISORS ATTEMPT TO
MISLEAD CONSUMERSBy Louis P. Stanasolovich, CFP®, CCO, CEO and President of
Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.®
Back in the late 1980’s the public and media understood that there were three types of advisors: Commission-Only, Fee and Commission or Fee-Only. At that time, there was a movement among Fee and Commission advisors to separate themselves from the “commissions” stigma. As a result, they began calling themselves “Fee-Based” in order to sound as if they were simi-lar to Fee-Only advisors thereby misleading consumers who were seeking Fee-Only Advisors. Many people believe that the term, Fee-Based, is misleading because Fee-Based advisors often do not provide unbiased advice to their clients due to their recommending investment and insurance products which produce “additional compensation” in the form of commissions and/or product fees for them or their firm.
In contrast to Fee-Based or Commission-Only advisors, Fee-Only advisors do not receive any commission-type compensa-tion whatsoever. In fact, many Fee-Only advisors such as the ones at Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. are fiduciaries. Fiduciaries are required by law to act in the client’s best interest at all times.
LOUIS P. STANASOLOVICH, CFP®, EDITORLouis P. Stanasolovich, CFP® is founder, CCO, CEO and President of Legend Financial Advisors, Inc.®
(Legend) and EmergingWealth Investment Management, Inc.® Lou is one of only four advisors nationwide to be selected 12 consecutive times by Worth magazine as one of “The Top 100 Wealth Advisors” in the country. Lou has also been selected 13 times by Medical Economics magazine as one of “The 150 Best Financial Advisors for Doctors in America”, twice as one of “The 100 Great Financial Planners in America” by Mutual Funds magazine, five times by Dental Practice Report as one of “The Best Financial Advisors for Dentists In America” and once by Barron’s as one of “The Top 100 Independent Financial Advisors”. Lou was selected by Financial Planning magazine as part of their inaugural Influencer Awards for the Wealth Creator award recognizing the advisor who has made the most significant contributions to best practices for portfolio management. He has been named to Investment Advisor magazine’s “IA 25” list three times, ranking the 25 most influential people in and around the financial advisory profession as well as being named by Financial Planning magazine as one of the country’s “Movers & Shakers” recognizing the top individuals who have done the most to advance the financial advisory profession.
ABOUT LEGEND FINANCIAL ADVISORS, INC.®
ABOUT EMERGINGWEALTH INVESTMENT MANAGEMENT, INC.®
EmergingWealth Investment Management, Inc.® (EmergingWealth), is the sister firm of Legend Financial Advisors, Inc.® (Leg-end) and is a Non-Commission, Fee-Only Securities and Exchange Commission (SEC) registered investment advisory firm. EmergingWealth provides Investment
Legend Financial Advisors, Inc.® (Legend) is a Non-Commission, Fee-Only, Fiduciary U.S. Se-curities and Exchange Commission registered investment advisory firm with its headquarters located in Pittsburgh, Pennsylvania. Legend provides Personalized Wealth Management Services Including Financial Planning And Investment Management Strategies to affluent and wealthy individuals as well as business enti-ties, medical practices and non-profit organiza-tions as well as retirement plans. Legend and its award-winning advisors are Fiduciaries.
FIVE REASONS TO CHOOSE LEGEND1. Legend is a Non-Commission, Fee-Only, Fiduciary advisory firm. Fee-Only means
Legend is compensated exclusively by client fees. Unlike Legend, fee-based advisors and brokerage firms have numerous conflicts of interest due to the fact that they receive commissions.
2. Members of Legend’s Financial Advisory Team have been selected by National Publica-tions such as Worth, Medical Economics and Barron’s more than 60 times as “The Best Financial Advisors In America”.
3. Unlike most advisory firms and all brokerage houses, Legend and its advisors have cho-sen to be governed by the Fiduciary Standard of Law. Fiduciaries are required to work in their clients’ best interests at all times.
4. Legend designs dynamic, creative and personalized financial planning and investment solutions for its clients.
5. Legend emphasizes low-cost investments where possible and attempts to trade and al-locate investments in an income tax-efficient manner.
Management services to individuals as well as business entities, medical practices and non-profit organizations whose wealth is emerging. All investment portfolios are sub-advised by Legend. Both Legend and EmergingWealth share a common advisory team, Investment Committee and Fee Schedule.
3THE GLOBAL INVESTMENT PULSE, September, 2018
MAJOR INDEX CHANGES OCCUR IN LATE SEPTEMBER
By Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.®
On Friday, September 21st, the Standard and Poor’s (S&P) and Morgan Stanley Capital International (MSCI) indexes made major changes to their components by renaming and expanding the Telecom sector. These changes could have subtle implications for the valuations of a num-ber of popular stocks.
Listed below is a summary of the chang-es.
In addition to renaming the Telecom sec-tor to Communications Services, S&P will be adding a handful of stocks from the Consumer Discretionary and Technology sectors.
The companies reclassified below and the sectors mentioned above comes as part
of an effort to rebalance the S&P 500. Prior to the reorganization, Verizon (VZ), AT&T (T) and CenturyLink (CTL) were the only three stocks remaining in the Telecom sector. In addition, the reshuf-fling will help mitigate the disproportionate influence of the Tech sector. Now that technology has become an integral part of just about every sector of the economy, it makes sense to rethink grouping every company involved in the tech field into one giant sector.
Which Stocks Are Being Reclassified?:
The following stocks will join Verizon, AT&T and CenturyLink in the new Com-munications Services sector:
1. Activision Blizzard (ATVI)2. Alphabet (GOOGL)3. CBS (CBS)4. Charter Communications (CHTR)5. Comcast (CMCSA)6. Discovery Communications (DISCA)7. DISH Network (DISH)8. Electronic Arts (EA)9. Facebook (FB)10. IPG Photonics (IPGP)11. Netflix (NFLX)12. News Corp (NWSA)13. Omnicom (OMC)14. Take-Two Interactive (TTWO)15. TripAdvisor (TRIP)16. Twenty-First Century Fox (FOXA)17. Twitter (TWTR)18. Viacom (VIAB)19. Walt Disney (DIS)
Current Sub-IndustryCurrent Sector New Sub-Industry New Sector
STOCK MARKET INDEX CHANGE: PRELIMINARY INDUSTRY AND SECTOR MAPPING
Source: Morgan Stanley Research via Business Insider
Major Index Changes, continued on page 4
4 THE GLOBAL INVESTMENT PULSE, September, 2018
ond year in office, which begins October 1st, and the first and second quarters of the third year have collectively been the best nine months for stock returns, based on 210 years of data.
It makes sense why this has been the case. Following the mid-term election,
past presidents have been motivated to “boost the economy with pro-growth poli-cies head of the election in year four”.
Source: This article was excerpted from The Best Time To Prepare Is While The Bull Runs”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors,
(Advisor Alert, September 24, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORSREPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS
Stock Market, continued from page 1
Source: LPL Research, FactSet via U.S. Global Investors, Advisor Alert,September 24, 2018, www.usfunds.com
REPRINTED WITH PERMISSION FROM U.S. GLOBAL INVESTORS
As of: September 24, 2018COPYRIGHT 2018 U.S. GLOBAL INVESTORS
THE NEXT THREE QUARTERS HAVE HISTORICALLYBEEN BULLISH FOR STOCKS
The Dow Jones Industrial Average Quarterly Performance,Based On The Presidential Cycle (1986 to 2017)
In addition, eBay (EBAY) will be moving from the Technology sector to the Con-sumer Discretionary sector to join Amazon (AMZN) and other e-commerce stocks.
How Will This Impact Trading?
The changes are likely to cause some volatility. Exchange-Traded Funds (ETFs) and mutual funds that track the S&P 500—or the telecom, consumer staples, or technology sectors—had to rebalance their portfolios on Friday, September 21st to match the new indexes.
The volatility will likely involve Facebook and Alphabet, as the two stocks will combine to make up about 45 percent of
the new Communication Services sector weighting. This could trigger unusual buy-ing and selling pressure.
Investors who want diversified exposure to the new Communication Services sector can simply buy the new SPDR Communi-cation Services ETF (XLC), which began trading on June 19th. It would be best to wait until volume reaches approximately 500,000 shares per day.
This is the first change for the S&P Tech companies since 1999.
It’s also only the second sector addition since 1999, and is a recognition of how
consolidation has melded the telecom, media, and internet industries together.
Source: This article was excerpted from “The Biggest Tech Companies Are About To Undergo A Major Reshuffling On The Stock Market — Here’s What’s Coming, And Why It Matters”, by Akin Oyedele, (Business Insider, September 21, 2018), https://www.businessinsider.com/sp-500-gics-sector-reclassification-to-create-communication-services-2018-8 COPYRIGHT 2018 BUSINESS INSIDER REPRINTED WITH PERMISSION OF BUSI-NESS INSIDER
Major Index Changes, continued from page 3
5THE GLOBAL INVESTMENT PULSE, September, 2018
FED WATCH
Source: Bloomberg Investment ServicesCOPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®
INTEREST RATES AS OF SEPTEMBER 28, 2018
Fed Funds Rate Range: 1.75 – 2.00%
Fed Discount Rate: 2.50%
2018 UPCOMING FED MEETING SCHEDULE
November 7-8December 18-19
To see if your investment portfolio is built to navigate the pitfalls and opportunities ahead,
call us today for a “Free Second Opinion” at (888) 236-5960
www.legend-financial.com
“Do You Want A Second Opinion?”
6 THE GLOBAL INVESTMENT PULSE, September, 2018
Breakout or Fake-Out?, continued from page 1
dating back to the late 1980s. It’s a cliché that valuations aren’t timing tools, but sev-eral measures which purport to be—in-cluding many relating to Fed policy, and a few relating to market breadth—also cast doubt on the sustainability of the market’s breakout.
Now that the S&P 500 has made a few new highs, the number of “Red Flags” accompanying those highs can be moni-tored. The tally at the market’s most re-cent high on August 29th was three “Red Flags”. (The eight charts below the S&P 500 charts in chart #2 on page 7). In con-trast, all eight Flags were waving at both the 1990 and 2007 market highs, while seven were flying back in March 2000.
Based on this simplistic summary of breadth (percentage of market participa-tion) and leadership (which stocks are leading the charge), the market may not be ready to top out. This may, however, be giving too much weight to the fact that the market highs of 1990, 2000, and 2007 adhered so well to the standard technical script for a market top. There have been other times when waiting for “too many”
internal warnings proved very costly. There were only two Red Flags present at the 1987 market peak, and just one at the April 2011 high that preceded a nasty five-month S&P 500 loss of almost 20.0%.
The Leuthold Group’s Major Trend Index (MTI), which is currently negative, and their other investing disciplines suggest we treat the August breakout as a poten-tial head fake. The rally off the February and March lows has been disjointed (if not conventionally narrow), and in any event hasn’t yet been enough to lift the MTI from its negative zone. But the MTI’s Mo-mentum inputs have been strong enough to dissuade most from moving to a mini-mum equity position into tactical funds.
Perhaps it’s pure coincidence, but the last three “recession-induced” bear markets (1990, 2000, and 2007, Charts 3-5 on pages 8 to 9 respectively) all suffered a final correction similar in size to that seen in the S&P 500 earlier this year. The market recovered more quickly in all three cases than it did this year, but the joy turned out to be short-lived. In each case, a bear market loomed within either a few
days (2007) or weeks (1990 and 2000), and recessions eventually followed.
Historical analogs are dicey even under the best circumstances. If commonali-ties didn’t exist with the fundamental and technical conditions accompanying those failed” market breakouts, it’s best not to present them at all. However, there are commonalities.
All three of those prior highs were accom-panied by:
1. a preceding series of Fed rate hikes;
2. rising inflation pressures;
3. a cyclically-low unemployment rate;
4. stock market overvaluation (ranging from moderate to ridiculous);
5. investor over-exuberance (ranging from mild to ridiculous); and,
6. internal market weakness (ranging from minor to ridiculous).
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 1S&P 500 RECOVERY PATHS FROM ALL INTERMEDIATE CORRECTIONS (7 – 12%)
1950 TO DATE
Breakout or Fake-Out?, continued on page 7
7THE GLOBAL INVESTMENT PULSE, September, 2018
Breakout or Fake-Out?, continued from page 6
As of: September 2018COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
Source: The Leuthold Group, LLC, Breakout Or Fake-Out?,September 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
* Equal-weighted composite of S&P 500 Consumer Discretionary, Industrials and Materials sectors.
Chart 2
Breakout or Fake-Out?, continued on page 8
8 THE GLOBAL INVESTMENT PULSE, September, 2018
Breakout or Fake-Out?, continued from page 7
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 3
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 4
Breakout or Fake-Out?, continued on page 9
9THE GLOBAL INVESTMENT PULSE, September, 2018
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 5
Breakout or Fake-Out?, continued from page 8
In all three cases of failed S&P 500 market breakout, the “last gasp” rally failed to lure Leuthold’s MTI out of its negative zone (al-though it came very close to doing so in 1990 and 2007). So far, 2018 fits that pattern as well (Chart 6, above).
Source: This article was excerpted from “Breakout Or Fake-Out?”, by Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC, (Perception Express, September, 2018), http://leuth.us/stock-market COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC REPRINTED WITH PERMISSION OF THE LEUTHOLD GROUP, LLC
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
CHART 6
PULSE
10 THE GLOBAL INVESTMENT PULSE, September, 2018
MUTUAL FUND BASICS
By James J. Holtzman, CFP®, Legend Financial Advisors, Inc.® andEmergingWealth Investment Management, Inc.®
One of the best and simplest ways of growing your money is to invest into mu-tual funds. They are very cost efficient, easy to invest in, safer and less volatile than stocks. However, when it comes to researching or selecting mutual funds, most investors find the process over-whelming, when it doesn’t have to be.
It is important to remember that the big-gest advantage to investing in mutual funds is diversification. An individual who owns shares in a mutual fund can invest as little as $25.00. Some mutual fund though have higher minimum invest-ments. By investing money into a mutual fund, an investor’s money, no matter how small an amount, is diversified among hundreds, and perhaps thousands, of
stocks, bonds, or other securities, thereby minimizing risk.
As a result, there isn’t a need to buy bonds and stocks directly. Investors also avoid volatility from one or two stocks. Furthermore, by investing in mutual funds, investors pay minimal fees, often less than 1.0% of the investment per year, while the monies are being managed by mutual fund managers, who are profes-sional money management experts. Money from a mutual fund is made when the stocks, bonds, or other securities increase in value, issue dividends or make interest payments. When investing in a mutual fund, the income made is the result of income received from dividend
paying stocks, and/or interest from bonds. If the mutual fund sells a holding whose value has increased, there of course is a profit. Even if the mutual fund does not sell a specific holding, the mutual fund itself will still increase in value. Therefore, the value of the shares held by investors in the mutual fund will increase in value when the holdings increase in value. Capital gains, income from debt investments (bonds or variable interest rate investments) that pay interest or divi-dend payments can be paid out as cash or can be reinvested into new mutual fund shares of the same fund.
COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®
PULSE
Source: The Leuthold Group, LLC, Perception Express, September 8, 2018,http://leuth.us/bond-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
Note: The Risk Aversion Index combines ten market-based measures including various credit and swap spreads,implied volatility, currency movements, commodity prices and relative returns among various high- and low-riskassets.
MONTHLY RISK AVERSION INDEX (RAI)RISK INDEX INCREASES SLIGHTLY-STILL NEAR LOWEST LEVEL EVER
By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors
Since President Trump’s inauguration, the Dow Jones U.S. Coal Index has climbed nearly 60.0%, double the S&P 500’s perfor-mance.
Source: This article was excerpted from The Best Time To Prepare Is While The Bull Runs”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, September 24, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
1/19
/201
72/
2/20
172/
16/2
017
3/2/
2017
3/16
/201
73/
30/2
017
4/13
/201
74/
27/2
017
5/11
/201
75/
25/2
017
6/8/
2017
6/22
/201
77/
6/20
177/
20/2
017
8/3/
2017
8/17
/201
78/
31/2
017
9/14
/201
79/
28/2
017
10/1
2/20
1710
/26/
2017
11/9
/201
711
/23/
2017
12/7
/201
712
/21/
2017
1/4/
2018
1/18
/201
82/
1/20
182/
15/2
018
3/1/
2018
3/15
/201
83/
29/2
018
4/12
/201
84/
26/2
018
5/10
/201
85/
24/2
018
6/7/
2018
6/21
/201
87/
5/20
187/
19/2
018
8/2/
2018
8/16
/201
88/
30/2
018
9/13
/201
8
DJ US TOT MKT COAL IDX (DJUSCL)
DOW JONES COAL INDEX PERFORMANCEJanuary 19, 2018 to September 21, 2018
Source: Bloomberg Investment ServicesCopyright 2018 Legend Financial Advisors, Inc.
PULSE
12 THE GLOBAL INVESTMENT PULSE, September, 2018
THE COMMODITY BULL THAT EQUITY INVESTORS MISSED
By Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC
While the bottom-line impact may ulti-mately be the same, there’s one thing we find more demoralizing than getting the direction of an asset wrong: getting the direction right and not getting paid for it. Yet that’s precisely the fate suffered by investors in commodity stocks during the past couple of years.
At the early-2016 lows, few investors could have envisioned a near-tripling in the price of crude oil in the next two years accompanied by a 30.0% gain in the Commodity Research Bureau (CRB) Raw Industrials—especially given a U.S. Dollar Index (in spite of some exciting gyrations) that stands roughly flat with its February 2016 level. The Leuthold Group’s Group Selection (GS) Scores certainly didn’t, and they missed the big 2016 bounce
enjoyed by most commodity-oriented industry groups (Chart 1, below). How-ever, the bearish GS stance on Energy and Materials sectors persisted, and has ultimately proven correct as commodity stocks have undercut their 2016 relative strength lows. That underperformance must be an especially bitter pill to swal-low for those who correctly forecasted the S&P Goldman Sachs Commodity Index’s (GSCI) big advance.
There is not a strong near-term view on commodity markets, but gold’s continued slump suggests that bulls’ expectations should be tempered (Chart 2 on the top of page 13). After Richard Nixon closed the gold window in 1971, gold has tended to lead swings in industrial commodity prices by about six months.
Then again, Chart 1 illustrates the dangers of using prices in one market to forecast trends in another.
Source: This article was excerpted from “The Commodity Bull That Equity Investors Missed”, by Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC, (Perception Express, September 8, 2018), http://leuth.us/stock-market COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC REPRINTED WITH PERMISSION OF THE LEUTHOLD GROUP, LLC
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 1
Commodity Bull, continued on page 13
13THE GLOBAL INVESTMENT PULSE, September, 2018
Commodity Bull, continued from page 12
Source: The Leuthold Group, LLC, Perception Express,September 8, 2018, http://leuth.us/stock-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018
Chart 2
PULSE
BARCLAYS U.S. HIGH YIELD BOND MINUS TREASURY BOND YIELD20
Source: The Leuthold Group, LLC, Perception Express, September 8, 2018, http://leuth.us/bond-marketREPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: September 8, 2018COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
Aug-18:3.49
DifferentialMedian: 5.01
14 THE GLOBAL INVESTMENT PULSE, September, 2018
2018 YEAR-TO-DATE PERFORMANCEJanuary 1, 2018 to August 31, 2018
(8 months)2018
Year-To-Date
Consumer Price Index (Inflation) 2.28%
90-Day Treasury Bills Index-Total Return 1.18%
Bloomberg Intermediate Term Corporate Bond Index -0.36%
Barclays Aggregate Bond Index-Total Return -0.96%
High Yield Corporate Bond Index – Total Return 0.09%
S&P Leveraged Loan Index – Total Return 3.35%
HFRX Global Hedge Fund Index -0.55%
S&P 500 Index (U.S. Stock Market) 9.94%
MSCI EAFE Index (Developed Foreign Equities) -1.88%
Dow Jones U.S. Real Estate Index-Total Return (USD)** 4.76%
Gold Bullion -8.23%
Compound and Total Returns include reinvested dividends. Newedge Index is equally-weighted.** USD = U.S. DollarSource: Bloomberg Investment Service COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC. ®
REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®
As of: August 31, 2018
15THE GLOBAL INVESTMENT PULSE, September, 2018
SECULAR BEAR MARKET WATCHApril 1, 2000 to August 31, 2018
Dow Jones U.S. Real Estate Index-Total Return (USD)** 10.57% 537.07%
Gold Bullion 8.26% 331.61%
Compound and Total Returns include reinvested dividends. MSCI Indexes do not include dividends prior to 2002. Newedge Index isequally-weighted.
** USD = U.S. DollarSource: Bloomberg Investment Service
COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC. ®
REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®
As of: August 31, 2018
Note: During Secular Bear markets U.S. Stocks have historically returned a little more than inflation or a little less thaninflation—plus or minus 1.50%—and generally last between 15 to 25 years. The last Secular Bear market (1966 to 1982)lasted 17 years and underperformed inflation by approximately one-half of one percent per year. The other SecularBear markets since 1900 were 1901 to 1920 and 1929 to 1949. In both cases, the U.S. Stock market outperformedinflation by approximately 1.50% per year. All of the aforementioned performance numbers are pre-tax.
The performance of the U.S. Stock market so far in the current period (April 1, 2000 to the present) certainly appears toindicate that we are in a Secular Bear market. Long-term returns (over the next 10 years) for the S&P 500 will probablybe slightly worse than the last 18 years and 5 months. Current 10 year normalized P/Es (long-term valuations) indicateapproximate annual compound returns of slightly less than 3.00% over the next 10 years. Of course during the next 10years, returns during various periods will be significantly higher and lower than the expected return. For example, themore the stock market rises in the near term, the less returns after that period will be and vice versa.
SECULAR BEAR MARKET WATCH (CONTINUED)April 1, 2000 to August 31, 2018
(18 years and 5 months)
COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC. ®
REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®
Legend Financial Advisors, Inc.® (Legend) and EmergingWealth Investment Management, Inc.® (EmergingWealth) offer Personalized Investment Management Services to individuals and institutions. Investment portfolios are developed to match the client’s return and risk requirements, which are determined by the clients’ completion of a Risk Comfort Zone Questionnaire, with the guidance of a Legend Wealth Advisor or EmergingWealth Advisor, respectively. Each type of investment portfolio is managed to achieve the short, intermediate and long-term investment objectives of the client, as may be applicable.
INVESTMENT PROCESS
Investment Portfolios:
Unlike most financial advisory firms that offer one style of investment or portfolio type, we offer a wide array of investment portfolios that usually fit with the large majority of client needs. If necessary, we will create customized solutions as well. For the types of investment portfolios, please see our Investment Portfolios, Potential Return and Risk Spectrum Chart on the next page. For a detailed description of our portfolios, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at [email protected].
Investment Research:
Our Investment Committee performs extensive research to identify opportunities, mitigate risks and structure investment portfolios. Emphasis is placed on developing portfolios that maximize the potential return relative to the amount of risk taken.
In-depth due diligence including face-to-face interviews in many instances with portfolio managers for open-end mutual funds is performed on each investment we select for a portfolio. Factors (both from a qualitative and quantitative standpoint) that we conduct a thorough analysis of each investment include, but is not limited to, liquidity (including the primary investment and/or the underlying investments, if utilizing pass through vehicles such as open-end mutual funds or exchange-traded products), income taxation, all related costs, return potential, drawdown potential (historical declines from peak-to-trough), volatility and management issues (Anything having to do with the management team of a stock, open-end mutual fund or an exchange-traded product.).
All portfolios for EmergingWealth are subadvised by Legend.
Client Education:
Education is very important to us. We are dedicated to educating each client about the different investment portfolio types and how they relate to market volatility, time horizons, and investment returns. It is our goal to ensure that the client understands and agrees with our investment philosophy. Furthermore, we assist each client in selecting a risk tolerance level with which they are comfortable. Ultimately, an investment portfolio is designed to meet the client’s objectives.
PERFORMANCE REPORTING
Many investment firms only offer monthly brokerage statements, which provide minimal information; typically only account and investment balances. We, on the other hand, provide detailed quarterly reports that outline performance, income and management fees (among other items) in a simple, easy-to-read report. In addition, each performance report is sent with an extensive index page that illustrates the investment environment during the reporting period.
FEES
To find out more about the fees for either Legend or EmergingWealth’s Investment Management services, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at [email protected].
