3rd Quarter Commentary

 

Summary of 3rd quarter 2017 commentary

  • U.S. stocks reached new all-time highs for the fifth quarter in a row
  • Volatility in the U.S. stock market remained near record lows
  • The U.S. bull market is the second longest since World War II and U.S. stock valuations look high
  • We are making significant changes in your accounts due to high stock valuations and low bond yields
  • We are introducing new asset classes in efforts to potentially reduce risks and seek to diversify your accounts

 

Market Summary

U.S. stocks, as measured by the S&P 500, continued their uptrend and reached new all-time highs for the fifth quarter in a row. This quarter marked the second longest U.S. bull market since World War II (trailing only the 1990’s bull market)[1]. Similar to the previous two quarters, conditions for stocks were relatively positive as illustrated by low volatility, positive economic growth and strong corporate earnings growth.

This current U.S. economic expansion is the third longest on record since World War II[2]. The expansion has been one of the slowest on record although the growth has been consistently positive. This quarter was no different – economic growth in the U.S. was positive, albeit slow. We saw continued improvement in non-U.S. economic growth and corporate earnings. U.S. inflation numbers were moderate and unemployment was near record lows.

Despite the recent natural disasters in the U.S. and the ongoing tension with North Korea, we’ve seen the third lowest annualized volatility since 1928 so far this year[3]. There is no clear answer as to why the markets were so calm. Several potential catalysts could increase volatility in the coming quarters including the threat of military escalation with North Korea and a political fight over the U.S. budget and debt ceiling negotiations. The wind down of European Central Bank (ECB) asset purchases plus tightening from the U.S. Federal Reserve could mean markets lose a powerful tailwind for economic stimulus and asset price inflation. Finally, high stock valuations, particularly in the U.S., may create a long term drag on future returns.

Below is a summary of returns for the major indexes[4]

US Large  Stocks (S&P 500 TR) US Small Stocks

(Russell 2000 TR)

International

(MSCI EAFE)

Emerging Markets

(MSCI EM)

US Bonds

(Barclays US Agg Bond TR)

3rd Quarter 2017* 4.48% 5.67% 5.4% 7.89% .85%
2017 YTD 14.24% 10.94% 19.96% 27.78% 3.14%
3yr annualized* 10.81% 12.18% 5.04% 4.9% 2.71%
5yr annualized* 14.22% 13.79% 8.38% 3.99% 2.06%
10yr annualized* 7.44% 7.85% 1.34% 1.32% 4.27%

 

Allocation Changes

We are in the process of making significant changes to the allocations in your accounts. The changes will include the introduction of new asset classes.  We will review these specific changes with you at your next meeting, but wanted to summarize the changes and the evidence we are considering as we make these changes.

Market prices have been very positive, particularly U.S. stocks.  Recent major stock index returns, as evidenced in the previous table, have all been positive[5]. While this is fantastic for portfolio returns, corporate earnings have not kept up. In the United States for example, earnings per share growth has significantly trailed the price of the S&P 500 Index over the last two years (see chart below)[6]

 

 

In addition, non-U.S. corporate earnings have lagged U.S. earnings during this cycle but have been rising faster more recently (see chart below)[7].


Compared to non-U.S. stocks, U.S. stocks look overvalued on a variety of metrics. The current price relative to the last ten years’ worth of real earnings (P/E10) is one of the more common valuation metrics. It shows the price an investor is paying for every dollar of earnings. A higher P/E10 means that an investor is paying more for every dollar of earnings. Currently, the P/E10 shows that U.S. stocks are trading at higher valuations than non-U.S. stocks (See table below)[8].

United States        Developed                   Europe

Emerging EmergingMarkets

 

Current P/E10 ratio           28             17.8           15.6

 

The current U.S. P/E10 ratio is one of the highest on record, putting it in the 96th percentile of highest valuations[9]. Only the Tech Bubble of the late 1990’s and the 1929 peak had higher valuations (See chart below)[10].

 

High valuations are significant because there has been research showing that higher starting valuations lead to lower future long-term returns. If earnings slow, we not only change the price based on the current situation, but the growth we were counting on needs to be entirely and quickly accounted for. In the chart below, the current P/E is in the 5th and highest quintile.  When this has occurred, not only is the average return in quintile 5 lower but both the maximum and minimum returns are lower as well (see chart at below)[11].

 

 

Generally, the first place we would turn to reduce risk in accounts would be the bond market. Due to low current yields, we are expecting positive, but muted returns in the bond market. In addition, the effect of rising rates on bond returns could largely offset the increased yield. This has us looking at other investment opportunities.

We start by looking within our existing asset classes for lower relative valuations. As previously noted, lower valuations can be found in international stocks (both developed and emerging markets). As a result we are planning on shifting a percentage of U.S. stocks to Non-U.S stocks.  We have already completed many of these changes.

Then we look for opportunities outside of the traditional stock and bond markets. This includes investments in Managed Futures, Options, Commodities, Real Estate and Reinsurance. A major benefit to these non-traditional or alternative asset classes is that they have historically been uncorrelated to both stocks and bonds. This adds another layer of diversification to your portfolio.

Some of these asset classes may have limited liquidity. This means that it may be harder to get a price on these investments as quickly as the stock or bond market. In addition, many of these investments only allow purchases or sales on a monthly or quarterly basis. They also exhibit poor tax efficiency, so we will mainly be adding these in retirement accounts. Starting in late 2017 and into early 2018 will be increasing exposure to these types of investments.

We look forward to discussing these changes and their effect on your accounts in our next meeting, but wanted to make sure to keep our logic as transparent as possible. It is impossible to know the direction that the market is going. We continue to use all of our tools and combined research to make the best risk adjusted decisions we possibly can based on your investment objective.

 

As always, please call if you have any questions or would like to discuss in more detail.

 

 

IMPORTANT DISCLOSURES

Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This newsletter is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual.  To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced herein is historical in nature and is not an indication of or a guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Your experience may vary according to your individual circumstances and there can be no assurance that LRIA will be able to achieve similar results for all clients in comparable situations or that any particular strategy or investment will prove profitable.   As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore.

Stock investing includes numerous specific risks including the fluctuations of dividend, loss of principal, and potential illiquidity of the investment in a falling market. International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Small cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small cap market may adversely affect the value of these investments. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. This newsletter should not be regarded as a complete analysis of the subjects discussed.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. The risks associated with investment-grade corporate bonds are considered significantly higher than those associated with first-class government bonds. The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. The range of this spread is an indicator of the market’s belief in the stability of the economy.

The fast price swings in commodities and currencies can result in significant volatility in an investor’s holdings.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.

INDEX DEFINITIONS

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices of approximately 800 stocks and is designed to measure equity market performance in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, , Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.

The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index of approximately 900 stocks and is designed to measure equity market performance in 21 developed market countries outside of North America.

[1] LPL Financial. Bull market from March 2009 through today.

[2] LPL Financial. Economic expansion from June 2009 through today.

[3] Pension Partners. S&P 500 Index, year to date through 9/26/2017

[4] Morningstar Direct. As of 10/2/2017

[5] Morningstar Direct. As of 10/2/2017

[6] FactSet Data. As of 8/28/2017

[7] JP Morgan, Guide to the Markets. Dated from January 2009 through June 2017

[8] StarCapital, As of 6/30/2017

[9] Advisor Perspectives. As of 9/5/17

[10] Advisor Perspectives. As of 9/5/17

[11] CMG Investment Research, Ned Davis Research Median P/E Data 1981-December 2015

Time is Running out for the SIMPLE Retirement Option

Time is Running out for the SIMPLE Retirement Option 

Are you considering starting a retirement plan for your small business?  Have under 100 people and want to make it easier to get them enrolled?  Then you only have a couple of days left to establish your SIMPLE Retirement plan.  They must be established by October 1.   

When people think of retirement plans, they almost always focus on 401(k)s.  We think the choice for many small businesses is really between a 401k account and a SIMPLE IRA.  We wanted to create a mini primer on some of the differences between the two plans. 

The SIMPLE IRA is the easiest from an administrative perspective, but all contributions are 100% vested as soon as employees contribute.  This makes it more of an employee benefit and less for employee retention.  The 401k has more administrative expense, but has flexibility in the amount, timing and nature of the contributions.  You can also have the employer contributions vest over a number of years (For example, 20% every year you work there…) 

 

For the SIMPLE IRA 

Contributions-

Contributions can be either 2% for everyone regardless of employee contribution or a 3% match.  Sample on employee with $100,000 in income.  If you selected 2%, they get $2,000 regardless of their participation.  On the Match, they get $3,000 but only if they also contribute $3,000.  I have seen more success with plans where employees need to participate in order to get a contribution.  Focuses the benefit on the employees that understand the contribution as a benefit.  Maximum Employee Deferrals would be $12,500/year.  If over 50 years old, they can also contribute an additional $3,000.  

To calculate your maximum company match, just multiply your payroll by either 2% or 3%. 

You can also set eligibility requirements.  You can be as strict as an employee must be with you for 2 years and make at least $5,000/year before they are eligible.  Most common would be employees eligible after the first year.  There isn’t much else available in terms of customization and you need to have fewer than 100 people to participate. 

Cost:

You have a lot of flexibility when it comes to providers and Cost.  You can Hire a Registered Investment Advisory firm to conduct in person enrollment and offer ongoing education and investment management or you can work directly with a fund provider.  Think of the fees like layers and make sure you understand the fees at each layer and the services that will be provided. 

Layer 1.  Tax filing and Administration:  Good news here.  Generally, there is no cost.  You want to make sure and establish a proto-type plan document, establish written authorization to deduct from employee’s paychecks…but you generally don’t need a lot of professional help.  If you are the owner, you will want help calculating your maximum contribution, but this is generally in the realm of your CPA.   

Layer 2 The investments: The Funds themselves have an annual expense ratio.  This is the percentage of the fund that is being used to manage the funds.  When you look at returns, they are generally referenced after this cost has been taken into account. 

Layer 3 Custody:  The funds need to be held somewhere and the company responsible for this is the custodian.  Some charge an IRA custodial Fee, usually flat rate per account or per fund.  Some also charge for transaction charges as a percentage of the account balance or per trade.  Employers have the ability to pay for many of the costs at this level. 

Layer 3 Investment Management:  When you want to give your employees the option of using a professional investment advisory firm to help allocate, manage and report on their accounts.  This often starts with an enrollment meeting and continues to establish an investment objective and manage accounts to conform to that objective.  Fees are either flat rate or expressed as a percentage of assets under management.  Be sure to find out how much employee education and financial planning is available at this level.  The employer can pay for the fees at this level as well.    

Layer 4 Employee Education and Financial Planning:  Many companies are not just offering these benefits, but ensuring that their employees have the resources to use them.  This can be in the form of Employee enrollment meetings, or one on one financial planning discussions.  This is generally either included in the investment management or defined in a separate consulting agreement based on a flat rate package or hourly commitment.  To get the most use out of your plan, don’t overlook the importance of educating and motivating your employees to take control of their own future.    

 

401K 

Customization:

There is a lot of customization available at the 401k level.  You can do flat contributions, matching contributions and profit sharing contributions.  You can set eligibility requirements similar to the SIMPLE, but you can also set vesting requirements.  Sample 6 year vesting requirement would be 0% the first year, followed by 20%, 40%, 60%, 80%, 100%.  You can always chose something less restrictive as well. You can even set your plan up so employees have to Opt-out instead of opt in. 

Contributions.

Employees can defer up to $18,000 of their salary pre-tax plus an additional $6,000 if over the age of 50.  Employee match depends greatly on customization options.  

Cost:

Since there is so much customization available, there are testing requirements and IRS filing requirements every year.  A Sample plan would include the following costs:  I won’t go into too much detail repeating above. 

Layer 1.  Tax filing and Administration: You will need a recordkeeper to make sure and keep accounts separated and a Third-party administrator to ensure testing, compliance and reporting.  There is usually a flat rate cost plus a certain dollar amount per participant.  The larger the plan, the costlier.     

Layer 2 The Investments:  This is the same as in the SIMPLE.  Make sure you are paying attention to the share class.  Some funds are offered at multiple cost ranges.  You want to see if you have access to the lowest cost institutional share.  Some providers obscure some of their costs in the expense ratio.  Hypothetically, you might have a Fund with an R2, R3, R4, R5, or R6 designation or N, L, G lettering.  Cost differences between the share class may exceed 1% so make sure you are getting the lowest cost share for your plan. 

Layer 3 Custody:  The funds need to be held somewhere and the company responsible for this is the custodian.  Most custodians will offer funds from multiple fund families and make it reasonably easy to change them.  You may also want a self-directed brokerage component for some employees. 

Layer 3 Investment Management: When you think of Investment management for your plan, it can be at the plan level or the employee level.  Minimally, the plan level should have an investment policy statement in place documenting the investment process for selecting and if need be, replacing the investment line up.  At the participant level, you can also set up models that can be managed by a professional and eligible as “one size” investment options for employees.  Most of these are generally offered as a % of the funds being managed though you may encounter minimums if you are starting a plan up from scratch. 

Layer 4 Employee Education and Financial Planning:  Same as the SIMPLE.  Consider an employee education plan to address not just Investment management, but budgeting and use of credit.   

So there are Many choices .  For more detail, check out the IRS Website on SIMPLE IRAs https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan  or 401K plans https://www.irs.gov/retirement-plans/401k-plans or contact a qualified Financial Advisor or CPA.   

Content may be re-distributed with reference and link.
 

About the Author 

Ben Rickey is co-Owner of Leonard Rickey Investment Advisors PLLC.  www.bestpathforward.com  Their practice focuses on family businesses.  He holds the Certified Financial Planner(CFP®) , the Certified Investment Management Analyst(CIMA®),  and the Certified Private Wealth Advisor Designations(CPWA®).   

 

Equifax Security Breach

Last week, one of the big four credit reporting agencies, Equifax, announced it experienced a security breach resulting in criminals accessing personal information of approximately 143 million Americans between May and July of this year. The compromised information included names, addresses, Social Security numbers, and dates of birth. In some instances, driver’s license numbers, credit card and credit dispute information were also compromised. This information is nearly everything that is needed to open an account in your name.

While our office does not have a direct relationship with Equifax, due to the sheer size of the breach, we felt it important to reach out and let you know what you can do to protect yourself.

  • First, visit the Equifax breach website at www.equifaxsecurity2017.com to determine whether you have been impacted.  Keep in mind that the full impact of this breach may not be known yet, so consider revisiting the site periodically for the next few weeks.

If you are impacted, consider placing a freeze on your credit with all of the following credit reporting agencies. Freezing your credit is the only way to prevent those with your personal information from opening accounts in your name.  You can also put a 90 day fraud alert on for free.

Consider obtaining credit monitoring services. Equifax is offering free credit monitoring to all Americans, whether impacted by the breach or not. Several companies also offer similar services for a fee. Please note that credit monitoring does not prevent ID theft; it simply alerts you when events occur that may impact your credit.

  • If you believe your information has been compromised, contact our office to discuss options to further protect your investment accounts.
  • Be on high alert for impersonators or phishing attempts by fraudsters. Be on the lookout for emails that appear to be from these companies, telling you that you’ve been impacted, or otherwise creating a sense of urgency, and to “click here” for more information.  When in doubt, do not click the link. Any legitimate company will have another way for you to contact them to be sure the email is safe.

We will remain on a high level of alert for any unauthorized account activity and continue our high level of verbal client authentication before any changes are made on your account.

As always, thank you for your trust.  If you have any additional concerns, don’t hesitate to reach out directly.

Sincerely,

Joy Stenehjem, CPA, CFP(R)
Leonard Rickey Investment Advisors
Chief Operating Officer

LRIA Portal Training-Documents Tab

This quick two minute video will guide you through the Documents Tab which is a quick and convenient way to view statements, reports,and documents we have uploaded for your review.

Still haven’t signed up for your new online Portal? It’s easy! Give our office a call and then watch our quick “Getting Set Up” video. We’re happy to answer any questions and hope you enjoy your Online Portal.

LRIA 2nd Quarter Market Commentary

  • U.S. stocks were positive and hit new all-time highs for the fourth consecutive quarter
  • Non-U.S. stocks were also positive and outperformed U.S. stocks
  • Stock volatility remained near record lows. The S&P 500 hasn’t had a 5% correction in over a year
  • The U.S. economy had positive but slow growth. It is currently the third longest economic expansion since 1900
  • The Federal Reserve raised short term interest rates to 1.25%

 

 

Market Summary

Similar to last quarter, conditions for stocks were relatively positive illustrated by low volatility and positive economic growth. U.S. stocks, as measured by the S&P 500, reached all-time highs for the fourth consecutive quarter despite lingering concerns about healthcare and tax reform. International stocks also saw positive performance and continued their recent trend of outperforming U.S. stocks.

The U.S. economy entered its 97th month of expansion. This has been the third longest expansion since 1900, although it has also been the slowest expansion since 1950[1]. Slow but positive economic growth continued in the second quarter, inflation remained relatively low and stable, and the U.S. labor market continued to strengthen. International economies saw a pickup in growth this past quarter after two years of mediocre economic growth. The Eurozone grew particularly fast, thanks in part to a weaker currency and rising confidence.

With the U.S. economy approaching the Federal Reserve’s targets of unemployment and inflation and the global economy generating fewer worries than in recent years, the Federal Reserve raised short term interest rates by .25% to 1.25% in June. This was the fourth time the Fed raised interest rates since the economic crisis of 2008-2009. Barring any significant negative shocks or fiscal stimulus, the Fed will likely continue to raise rates at a slow pace.

Below is a summary of returns for the major indexes[2] and a summary of global headlines throughout the quarter[3]. It is important to note that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.

US Large Stocks

(S&P 500 TR)

US Small Stocks

(Russell 2000 TR)

International

(MSCI EAFE)

Emerging Markets

(MSCI EM)

US Bonds

(Barclays US Agg Bond TR)

2nd Quarter 2017* 3.09%

2.46%

6.12% 6.27% 1.45%
2017 YTD 9.34% 4.99% 13.81% 18.43% 2.27%
3yr annualized* 9.61% 7.36% 1.15% 1.07% 2.48%
5yr annualized* 14.63% 13.7% 8.69% 3.96% 2.21%
10yr annualized* 7.18% 6.92% 1.03% 1.91%

4.48%

 

Current Trends

41 of the 46 largest stock markets in the world delivered positive returns during the quarter (See graph below)[4].

Despite U.S. stocks being one of the worst performing countries for the quarter, they continued their uptrend and hit another new all-time high. U.S. stocks have significantly outperformed international stocks since 2009, so the recent shift to international stock outperformance has been notable.

One major positive for international stocks was that the U.S. dollar weakened during the quarter, which has the effect of increasing returns for U.S. based investors in unhedged non-U.S. stocks. In addition, the political and trade risks that were present at the beginning of the year faded as Europeans elections favored more moderate candidates.

U.S. earnings in the next 12 months were expected to be at a record high. However, earnings in both Europe and Emerging Markets remained far below their 2011 peaks. A long cyclical recovery in Europe and an improving banking system could lift European earnings while Emerging Market profits could rebound on firmer commodity prices. Both European and EM earnings appeared to have more room to grow earnings than in the U.S.

Low Volatility Continued

With strong earnings, low inflation and low interest rates, stocks remained calm for the quarter. The Volatility Index (known as the VIX), shows the market’s expectations of 30-day volatility. The VIX finished the quarter in the lowest 4% of all periods (see chart below[5]). The VIX had seven days below 10 so far this year, which is the same number of days below 10 as all prior years combined since inception in 1990[6].

In addition, the S&P 500 hasn’t experienced a 5% correction in over a year, which has only happened six other times since 1950[7]. Since 1950, the average yearly correction for the S&P 500 has been 13.6% (See graph below)[8]. Low volatility doesn’t mean that a correction is imminent. However, there is always the potential a larger correction could occur sometime later this year.

 

Broad Economic Growth

U.S. economic data was mostly positive and indicative of an ongoing expansion (although a slower than average expansion). Consumer confidence remained high and both manufacturing and service sectors remained strong throughout the quarter[9]. Unemployment data continued to be strong and inflation remained stable and low. One of the benefits of this slow growth environment is that it has helped keep inflation in check and the Federal Reserve accommodative. Both these factors have assisted in keeping the bull market going.

The positive economic data led to the Federal Reserve to raise short-term interest rates by a quarter point to 1.25% – their fourth rat hike since December 2015. One more interest rate hike was expected by investors for this year.

Economies outside of the U.S. had one of their best years in more than a half decade. All of the world’s top 20 economies were growing so far this year. This broader global growth boosted overall global trade, particularly in emerging market economies where exports are a large share of their economies. In fact, world trade was on track to post the best growth since 2010[10]. In addition, all of the world’s top 20 economies were on track to grow in 2017[11] (see chart below).

In recent months, there have been a few pockets of weakness in the cyclical sectors. Both Light vehicle sales and housing start slowed down this past quarter[12] (See charts below). This will be something to watch going forward.

If you have any questions or would like more information on how this affects your accounts, please contact us.

 

 

 

 

IMPORTANT DISCLOSURES

Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This newsletter is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced herein is historical in nature and is not an indication of or a guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Your experience may vary according to your individual circumstances and there can be no assurance that LRIA will be able to achieve similar results for all clients in comparable situations or that any particular strategy or investment will prove profitable.   As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore.

Stock investing includes numerous specific risks including the fluctuations of dividend, loss of principal, and potential illiquidity of the investment in a falling market. International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Small cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small cap market may adversely affect the value of these investments. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. This newsletter should not be regarded as a complete analysis of the subjects discussed.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. The risks associated with investment-grade corporate bonds are considered significantly higher than those associated with first-class government bonds. The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. The range of this spread is an indicator of the market’s belief in the stability of the economy.

The fast price swings in commodities and currencies can result in significant volatility in an investor’s holdings.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.

 

INDEX DEFINITIONS

  • The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
  • The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
  • The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.
  • The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices of approximately 800 stocks and is designed to measure equity market performance in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, , Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.
  • The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index of approximately 900 stocks and is designed to measure equity market performance in 21 developed market countries outside of North America.
  • MSCI ACWI Index (All Cap World Index) is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is comprised of stocks from both developed and emerging markets.
  • The MSCI World ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries*–excluding the United States. With 3,508 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country.
  • The MSCI USA Investable Market Index (IMI) is designed to measure the performance of the large, mid and small cap segments of the US market. With 2,473 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in the US.
  • The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across 24 Emerging Markets (EM) countries*. With 2,687 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country.
  • The Nasdaq Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests.
  • The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement.
  • The S&P 500 Cons Discretionary Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer discretionary sector.
  • The S&P 500 Cons Staples Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer staples sector.
  • The S&P 500 Energy Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® energy sector.
  • The S&P 500 Financials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® financials sector.
  • The S&P 500 Health Care Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® health care sector.
  • The S&P 500 Industrials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® industrials sector.
  • The S&P 500 Materials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® materials sector.
  • The S&P 500 Telecom Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® telecommunication services sector.
  • The S&P 500 Technology Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® information technology sector.
  • The S&P 500 Utilities Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® utilities sector.

 

 

 

[1] J.P. Morgan Asset Management

[2] Morningstar. Through March 31, 2017. All returns are in U.S. dollars (USD)

[3] Dimensional Fund Advisors. Graph Source: MSCI ACWI Index [net div]

[4] Dimensional Fund Advisors. Country performance based on respective indices in the MSCI World ex US IMI Index, MSCI USA IMI Index, and MSCI Emerging Markets IMI Index. All returns in USD [net div]

[5] StockCharts.com

[6] LPL Research

[7] LPL Research

[8] LPL Research, Factset.

[9] ISM Manufacturing Index, ISM non-Manufacturing Index

[10] J.P. Morgan Asset Management

[11] Schwab. Factset

[12] J.P. Morgan Asset Management

First Annual Leonard Rickey Founders Scholarship

Ben Rickey was honored to present our first annual Leonard Rickey Founders Scholarship through the West Valley Dollars for Scholars at West Valley High School in May.  Leonard was one of the founding members of the West Valley Dollars for Scholars in 1994. This years recipient is Jack Warren.

At the event, WVDFS awarded just under $60,000 in scholarships to youth in our community. The scholarship recipients were selected by the board with the help of class ranking, teacher appraisal, community activities and two short essays. It is a great organization to empower kids with the resources needed to tackle higher education.

We are proud to partner with this great organization and happy for our first recipient. Congratulations for your hard work and best of luck in your future endeavors!

NAPFA Conference

Last year, I joined the National Association of Personal Financial Advisors (NAPFA).  It is the country’s leading professional association of fee only financial advisors.  It requires substantial continuing education as well as adherence to a Code of Ethics and a yearly attestation to a Fiduciary Oath. It has been a tremendous resource for our entire Firm.  When they announced their National Conference was going to be in our backyard (Bellevue), I didn’t think I could pass it up.

The first day was dedicated to investor behavior.  We had professors from Kansas state and the University of Georgia run a workshop on how our behavior can get in the way of making good money decisions.  It was no surprise to me that they listed money as the number one stressor in America since 2007.  Felt good to know that the number one way to cope with that stress is to create a plan and number two is to implement it.

I had a great educational session on College planning and the benefits of deeply integrating tax planning with your investment management.  While neither of these topics are new by any means, it is always beneficial to sharpen the mental saw and stay on top of new developments.  There was also an excellent session on cyber-security.  We are planning on adapting it to a classroom session we intend to offer to clients and post on our website.

My favorite key note speaker was Vivek Wadhwa.  His talk centered on how America is re-inventing itself through innovation.  He spent time talking about the concept of exponential growth.  It is hard to think of things getting twice as good at the same time that they get half as expensive, but the examples are numerous – from computer memory to cell phones.  A very exciting look at the future with implications in the investment world as well as the economy in general.

I also like to take these opportunities to deepen my peer group.  By sharing ideas, we not only have the ability to have better outcomes for our clients, but we also have the ability to help advance the whole industry.   I was certainly not disappointed.  It is refreshing to see so many folks committed and truly passionate about offering fiduciary financial advice.  People committed to not just disclosing conflicts of interest, but doing everything they can to avoid them.  I had some great conversations on different tools and techniques to keep Leonard Rickey Investment Advisors at the forefront of the financial planning community.

For more information about criteria for NAPFA membership, please visit NAPFA.org

Rotary Friendship Award

Dirk Bernd received the Rotary Friendship & Fellowship Award for SW Rotary. The Rotarian Moto is Service Above Self. Dirk received this award in recognition for his many hours of volunteer work, including organizing a yearly blanket drive in the Yakima Valley. Dirk was nominated by his fellow club Rotarians and was presented his award along with a check for $105,000 for the new Chesterly Playground in Yakima.

We love when our Leonard Rickey Team gives back to our communities. Congratulations Dirk and thank you for your service!

Susan Completes Masters Program

Susan Van Tress recently completed the requirements to receive her Masters of Science Degree in Management and Leadership. The program was over 30 credits and included courses in Management Communication, Ethical Leadership, Data-Driven Decision Making and more.
Susan completed the program in under 2 years while juggling home life and the excellent work she does for our company. We strongly believe that education not only provides individual growth but provides experience and skills that help us continue to provide excellent care for our clients.

Congratulations Susan on this huge accomplishment!!

1st Quarter 2017 Commentary

Leonard Rickey Investment Advisors

Market Summary

The rally from the fourth quarter of last year continued into the start of the first quarter as investors continued to bet on the Trump administration’s policies to cut taxes, reduce regulation and increase infrastructure spending. U.S. stocks, as measured by the S&P 500 Index, were up over 6% and reached another new all-time high in the first quarter. Midway through the quarter, the S&P 500 pulled back after the failure to repeal and replace the Affordable Care Act (Obamacare). Investors’ doubts grew that the Republican majority in Congress could unite and enact other major policy changes.

Despite the political uncertainty, consumers and business around the globe seemed significantly more positive about the outlook than they were this time last year. In Europe, business surveys rose to their highest levels in over five years and consumer confidence recovered to pre-crisis highs[1]. This helped both international stocks and emerging market stocks outperform U.S. stocks last quarter. However, both still significantly trail U.S. stock returns over five and ten years. U.S. bonds traded in a tight range throughout the quarter and finished positive despite the Federal Reserve hiking short term interest rates by .25% to .75%. Here is a summary of returns for the major indexes[2]:

US Large Stocks

(S&P 500 TR)

US Small Stocks

(Russell 2000 TR)

International

(MSCI EAFE)

Emerging Markets

(MSCI EM)

US Bonds

(Barclays US Agg Bond TR)

1st Quarter 2017* 6.07% 2.47% 7.25% 11.45% .82%
3yr annualized* 10.37% 7.22% .5% 1.18% 2.68%
5yr annualized* 13.3% 12.35% 5.83% .81% 2.34%
10yr annualized* 7.51% 7.12% 1.05% 2.72% 4.27%

*Through March 31, 2017. All returns are in U.S. dollars. Source: Morningstar

 

Current Market Trends

Stocks continued their uptrend in the first quarter, although signs of weakness started to appear as the “Trump rally” started to fade in March. Both non-U.S. developed and Emerging Market stocks outperformed U.S. stocks for the quarter, with Emerging Market stocks leading the way. The change in the relative performance of Emerging Markets versus U.S. stocks was notable as they have significantly trailed U.S. stocks for the past six years. Below is a chart that compares the S&P 500 (U.S. stocks) index to the MSCI Emerging Markets index[3]. When the line goes up (from 2004-2011) it means Emerging Market outperformed U.S. stocks, when the line goes down (2011-2016) it means U.S. stocks outperformed. While the trend certainly hasn’t turned completely, the relative performance bottomed in early 2016 and again late last year.

 

Another notable trend during the quarter was the low stock market volatility. At one point during the quarter there was more than 100 days without a single one percent down day.  This was the longest such streak since 1995[4].

Finally, many of the so-called “Trump trades” that were hit hardest in the fourth quarter last year rallied in the first quarter as uncertainties grew over his policies. For example, emerging market stocks were down over 4% in the fourth quarter compared to up 11% this quarter; Mexican stocks were down over 9% last quarter compared to up 16% this quarter; U.S. Healthcare stocks were down over 4% in the fourth quarter compared to up over 8% this quarter; and Gold was down over 13% in the fourth quarter compared to up over 8% this quarter.[5]

Economic Update

While U.S. political issues dominated the headlines during the quarter, the economy continued to grow at a positive but slow pace. Economic data like inflation, unemployment, wage growth and manufacturing were generally strong during the quarter. The strong economic reports led to the Federal Reserve to raise short-term interest rates to .75%. This marked the third interest rate hike in the last 16 months (See chart below)[6]. The Fed indicated that they will raise rates slower than past cycle. Another two rate hikes were expected by investors for this year.

While the economic backdrop showed signs of improvement, the “soft” data derived from surveys of consumers and producers that indicate how they feel, was a lot stronger than “hard” data. “Hard” data, such as employment, durable goods orders, and housing starts numbers revealed the actual levels of economic activity. These were generally positive during the quarter but not as strong as “soft” data such as consumer sentiment readings, which were near multi-year highs (see chart below)[7].

One notable positive indicator in the “hard” data category was the Leading Economic Indicators Index (LEI), which made a new all-time high during the first quarter. This topped the previous peak from March 2006[8]. The LEI looks at 10 diverse economic indicators and has historically provided early warnings of recession.

The soft data includes the ISM Manufacturing Index and the Consumer Confidence Index, which both came in strong during the quarter. The ISM Manufacturing Index is obtained from a survey of manufacturing supply executives, and the Consumer Confidence Index is a survey that attempts to measure consumers’ assessment of current business and economic conditions. The Consumer Confidence Index finished near 15 year highs while the ISM Manufacturing Index was near it’s high of the past 7 years (See charts below). However, questions remained if these high readings will lead to higher economic growth or if expectations are too high.

Corporate Fundamentals

U.S. stock market valuations remained high during the quarter. Below is chart showing the Price to Sales (P/S) ratio of the S&P 500 over the last 60 years[9]. The P/S ratio is a popular metric that compares current prices to revenues. The higher the ratio the more an investor pays for the revenues of the S&P 500 companies. During the quarter, the P/S ratio was well above its historical average and near its all-time highs. When the P/S ratio is this high, future stock returns have historically been well below average (see yellow highlighted area).

Corporate balance sheets remained strong as many companies had a high cash balance as a percentage of their assets[10].

However, recently we’ve seen companies take on significantly more debt which may make them more vulnerable to rising interest rates. Debt isn’t necessarily a bad thing as long as interest rates remain low. However, if rates rise corporate interest expense will likely rise and cut into profit margins. In addition, a high debt balance may make it more difficult for a company to refinance and could increase the likelihood of bankruptcy.

Below are two charts showing the increasing debt on company’s balance sheets. The first one measures debt against Earnings[11] (EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization) and the second chart measures debt against U.S. Gross Domestic Product[12].

If you have any questions or would like more information on how this affects your accounts, please contact us.

 

IMPORTANT DISCLOSURES

Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This newsletter is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual.  To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced herein is historical in nature and is not an indication of or a guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Your experience may vary according to your individual circumstances and there can be no assurance that LRIA will be able to achieve similar results for all clients in comparable situations or that any particular strategy or investment will prove profitable.   As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore.

Stock investing includes numerous specific risks including the fluctuations of dividend, loss of principal, and potential illiquidity of the investment in a falling market. International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Small cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small cap market may adversely affect the value of these investments. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. This newsletter should not be regarded as a complete analysis of the subjects discussed.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. The risks associated with investment-grade corporate bonds are considered significantly higher than those associated with first-class government bonds. The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. The range of this spread is an indicator of the market’s belief in the stability of the economy.

The fast price swings in commodities and currencies can result in significant volatility in an investor’s holdings.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.

INDEX DEFINITIONS

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices of approximately 800 stocks and is designed to measure equity market performance in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, , Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.

The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index of approximately 900 stocks and is designed to measure equity market performance in 21 developed market countries outside of North America.

The Nasdaq Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests.

The MSCI Mexico Index is designed to measure the performance of the large and mid cap segments of the Mexican market. With 27 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Mexico.

The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement.

The S&P 500 Cons Discretionary Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer discretionary sector. 

The S&P 500 Cons Staples Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer staples sector. 

The S&P 500 Energy Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® energy sector. 

The S&P 500 Financials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® financials sector. 

The S&P 500 Health Care Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® health care sector. 

The S&P 500 Industrials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® industrials sector. 

The S&P 500 Materials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® materials sector. 

The S&P 500 Telecom Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® telecommunication services sector. 

The S&P 500 Technology Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® information technology sector. 

The S&P 500 Utilities Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® utilities sector. 

[1] JPMorgan Asset Management

[2] Morningstar

[3] StockCharts.com

[4] LPL Research

[5] Morningstar

[6] JPMorgan Asset Management

[7] Bloomberg, Morgan Stanley Research

[8] LPL Research

[9] Ned Davis Research

[10] JPMorgan Asset Management

[11] Thomson Reuters, Barclays Research

[12] JPMorgan Asset Management