Bullseye 2017 Year End Wrap Up
by Timothy Guthrie on Jan 17, 2018
2017 was a very good year. The average Bullseye client made 18.4% in 2017, and has a two-year average of 13% a year. The average client attained these results with a portfolio that is about 70% stocks and has 25% less downside risk than the S&P 500. For comparisons sake, a blended index of 70% stocks, and 30% bonds (the NYSE composite index and the Vanguard Bond index) made 11.4% last year and has a two-year average of 8.9%.
Notes: The Bullseye composite results are an average of almost every account. The only accounts excluded from this result are 401k accounts. They were excluded because they are tracked differently in my software. Impact wise, the excluded accounts are about 2% of all client assets. The risk measurement mentioned above is a risk score for Bullseye client’s top ten holdings, which represent about 80% of all client assets. I compare our results to a blended (70% stocks/30% bonds) index because it a closer approximation of what our accounts look like. An all stock index would be comparing apples and oranges. In the next quarter, I will have an upgrade of my performance measurement software that also tracks all the standard risk measurement statistics as well, and will offer a more accurate risk measurement for each of your accounts. I am looking forward to this.
How did your accounts do? Contact me if you would like to review your results and risk level.
What does 2018 hold? As I have said before, my crystal ball is broken, but I can tell you two things:
One, globally, the right conditions exist for continued gains in the equity markets. Interest rates are low, energy prices are low, economic growth is accelerating, and US businesses and consumers just got a tax cut. This corporate tax cut is really a big deal. It may offer a ‘permanent” boost to corporate cash flow. This extra money could go to expansion, compensation, buying back shares, and hiring new employees. It really is perfect weather for investing. The markets could very well continue to advance.
Two, at any time there could be a market decline, this is always true. It is important to not get carried away and forget your risk tolerance. The market appreciation is not a reason to change your risk tolerance. Enjoy the gains, but remember that your account should reflect your long-term goals and risk level. If you are not sure about your risk tolerance, contact me and we can review your account’s risk and discuss what you are comfortable with.
For growth, I continue to favor medical technology, industrial automation, artificial intelligence and mid cap stocks. The approach I continue to favor seeking access to these sectors includes ETFs (exchange traded funds) and mutual funds, with a few individual stocks thrown in. The ETFs and mutual funds own a variety of stocks and provide some diversification across a sector. The products we are using remain very competitive and are performing very well. These products include:
****- A Nasdaq 100 index ETF that applies a screening process to the stocks in the index
****- An ETF focused on industrial automation
****- An ETF similar to ROBO, but shifts the focus to artificial intelligence
*****- A mutual fund focused on technology innovation- Bullseye clients own 25% of this excellent little fund!
*****- A fantastic mid cap focused mutual fund
***- A Medical device ETF that has exposure to makers of artificial joints and pacemakers
*****- A early stage biotech mutual fund
Risk management is also an important feature of our accounts. For risk management I continue to use lower risk equity ETFs and mutual funds, and chiefly fixed income. The mortgage fund we use had a great year, while offering very effective diversification from the stock market due to almost no correlation. The conservative equity products we use had good returns last year while also reducing risk due to both lower volatility and low correlation to the most US stocks. These products include:
*****- Our largest single holding, this globally diversified mutual fund has exposure to 80 investment markets around the world and has achieved positive returns in 19 of the past 20 years, while also reducing risk when held as a portion of a portfolio.
***- A large cap equity focuses ETF that applies a screen to major US stock sectors and this screening process has resulted in 20-30% less risk than the S&P 500.
*****- A mutual fund that invests in aged mortgages. These pre-2007 mortgages may have one or two more years of excellent potential.
***-An ETF that owns preferred stocks, often called ‘baby bonds’. These preferred stocks may have less interest rate risk than traditional bonds.
Not everyone owns all these holdings, portfolios are built based your goals and risk tolerance. Risk is managed primarily by reduced exposure to the growth holdings and shifting more assets to the conservative, risk management holdings.
Investment market changes could change the products used, as would a product’s loss of competitive performance. I monitor these products to make sure they are performing.
Note: When this newsletter is published on my website these holdings symbols will not be listed.
Investment Policy Statements (IPS)
For some clients your investment policy statement is over 10 years old. I want to make sure that I have the right portfolio design for you based on your needs, goals and risk tolerance. Over the next few months I will be contacting some of you to get your IPS updated.
Friday, January 19th, 11am to 7pm. Dickies Barbeque, and gifts for all clients. Please call/text/email to let me know you can attend. I hope many can attend. If you are not local to Cincinnati, I don’t expect you to attend, but I have an RSVP from Louisville and one from Sebring FL!