Archive for category: Newsletter

As of this writing, the gridlock in DC has remained strong. The markets seem to celebrate this fact daily as Republicans have been unable to accomplish much of anything with their majority-on the legislative front – no border wall, little success on immigration laws, no repeal or replacement of the Affordable Care Act, no tax cuts (personal or corporate), no repatriation of dollars abroad, and no signs of an infrastructure spending plan. These are massive, complex goals with myriad of potential results and consequences. While some of these initiatives could prove a boon to the market if enacted (corporate tax reform, repatriation, infrastructure spending) there is no way to know how this might play out.

We do know, however, that owning a diversified portfolio of quality assets at reasonable prices has proven to be a successful investment strategy over the long term. We will use market/stock volatility to add to higher quality stocks – companies that have a durable competitive advantage, solid balance sheet, robust cash flow, strong returns on invested capital and are attractively valuated. In addition, we will continue to have an allocation of the portfolio devoted to contrarian companies (i.e. value stocks) that in most cases have underperformed the general equity market in the short-term. Overall, Shorepoint intends to stay the course, looking for and taking advantage of opportunities as they arise and generating attractive returns to help our clients meet their goals.

Where does that lead us? As contrarians, we have added to dividend paying stocks especially the beaten down and vilified healthcare sector.  We are also positive on technology, mid and small cap stocks and international equities.  As for bonds, we continue to have a diversified allocation and think much of the anticipated interest rate hikes are factored into municipals, leverage loan funds, etc. Although a stock market correction (10% pullback) is not out of the question, we will use it, and normal day to day market volatility, to upgrade portfolios into higher quality companies that are attractively valued, with solid balance sheets and that are strong cash flow generators.

We remain vigilant and ever watchful but also hopeful. The market has climbed a wall of worry as it always does when it rallies. Will it get through the new highs this time or simply be another failed test? We don’t know; no one does. But we will keep ensuring that every position in our clients’ portfolios are carefully thought out as best we can and give our constituents the best chance for success in this anxious, low interest rate world without precedent.

After several years of the Federal Reserve (“Fed”) maintaining a zero interest rate policy, it elected to raise the federal funds rate by 0.25% this past December- the first hike in a decade. The move was widely anticipated and telegraphed by the Fed. Conversations turned quickly toward anticipation and timing of the next raise. We think we will be having this conversation for months, if not years, to come. However, that doesn’t mean it has imminent bearing on our overall investment strategy decisions.

This past quarter would appear to have been a bit of a yawner if judged solely on price change in the equity markets. While bonds experienced an uptick in yields, the results were negative total returns across the different bond sectors with long dated bonds down -7.6%. Other areas hit hard by higher rates were: REITs (-9.1%) and utility stocks (-10.7%). Strangely enough major domestic large cap, mid cap and small cap indices as well as international developed and emerging market indices all ended within a fairly tight range, with the best performance coming from the growth stock laden NASDAQ Composite +1.75%. The S&P 400 Index (mid-cap stocks) was the weakest, losing -1.06% in the period. Given the cacophony of handwringing and noise, an alien looking down on Earthlings from 265,000 feet would be justified in saying, “These humans need to relax!”