by Timothy Guthrie on Jun 18, 2019
April saw continued gains in most US stock market indices. On average, our accounts gained 2% for total gains of 17% YTD. The underlying theme was that the a ‘trade deal’ with China was 90% sewn up. The feared ‘global slowdown’ was now cancelled and everything looked rosy.
In May the picture changed. The news was China “walked back” their previous concessions and Trump imposed threatened new higher tariffs. With the trade deal now in tatters, the market gave back some of the recent gains. Major indices fell 4- 5% and the ‘fretting’ level was high…for a day. Then a more rational opinion took over. The ‘rational’ opinion was this:
- Having no trade deal was not the end of world.
- Most companies that import goods from China have been trying to diversify their sourcing for a year already and the fear level is much lower. Other counties will end up getting some of the business China loses.
- We don’t really sell that much to China anyway.
- Wal-Mart said basically they expect no disruptions and no noticeable price increases (this was huge).
- Chinese firms appear (so far) to be eating the tariffs by lowering prices to maintain market share and thus domestic employment though overtime this will get much harder.
- The farmers will get a ‘consolation prize gift bag from the Feds’ and all will be forgiven.
- Our largest risk from the trade issue is from consumer and business tech products like computer chips, electronic assemblies, smart phones, and various computing systems. A year ago, I greatly reduced our exposure to these companies by taking our tech exposure to ‘software only’ from a previous mix of hardware and software. This software only approach has reduced our risk as we don’t import software from China, so the tariffs or trade dispute don’t come into play. Over the past year the software only tech investing approach has outperformed our old approach by 13%, and 8% this past month alone. Our asset allocation is working quite well.
- Other large areas where US companies source goods from China are apparel and toys and we have virtually no exposure to these industries.
- There will be some disruptions and I have not addressed every possible angle but overall companies will source from different countries where possible and long term this means no permanent problems for us, and possibly real damage to the Chinese suppliers as they lose market share or profits by absorbing cost increases (from tariffs).
- My take on agricultural sales is this: Selling huge volumes of soybeans or other commodities to the Chinese is great, but if China switches to Brazil, then eventually we pick up Brazil’s old customers as people need to eat and you can’t make more soybeans by hiring a third shift. Short term Disruption yes, permanent loss, no.
- This is all happening because the Chinese leadership want to look like they are ‘not caving in’ to our demands as they cannot acknowledge any prior wrongdoing (i.e. stealing intellectual property). This is all internal Chinese PR and is quite surprising given that the government has complete control of the media.
- The fear of change has dropped remarkably compared to last year. I believe this is because the economy is so very strong, and employment is at record levels.
- The consensus is that Trump has little risk here because the economy is so strong. Many have expressed it this way, “He is playing with the house’s money.” Talking to China the past 20 years has not accomplished anything—maybe actions will.
Later last week the market gained back some the losses and I estimate right now, that most accounts are about 2% below the peak levels of two weeks ago, which is a market beating performance. Moving forward I expect both some more choppiness this summer yet more gains for the year. I am taking some small steps to reduce risk a bit as we have had very good results so far. This primarily means reducing exposure to holdings with strong gains (to keep risk from rising) by rebalancing back to original allocations and some product changes where the new product has less downside risk yet similar current potential.
We use products to build portfolios. Mutual funds and ETFs (exchange traded funds) help us assemble portfolios that are both diversified and focused. Two of the products in our current top ten list have recently been recognized by the Wall Street Journal for their OUTSTANDING results:
April 17, 2019
Boston, MA – The Eventide Gilead Fund and the Eventide Healthcare & Life Sciences Fund were both named as “Category Kings” by The Wall Street Journal for the one-year period ending March 31, 2019. The Category King award recognizes the top 10 performing funds in each equity category for trailing one-year total return. The Eventide Gilead Fund (NASDAQ: ETILX) ranked #4 in the Midcap Growth category out of 401 funds, and the Eventide Healthcare & Life Sciences Fund (NASDAQ: ETIHX) ranked #1 in the Health & Biotech category out of 97 funds.
The Eventide Gilead fund is our #3 holding at just over 10% of an average account and is in the top 1% of similar funds. The Eventide Healthcare & Lifesciences fund is #1 out of 97 biotech funds. This fund is our number 6 most used product. Bullseye cannot take any credit for the great results of these funds, but we can take full credit that we started using these outstanding products several years ago and our clients are enjoying the excellent results of our process that regularly screens for the most competitive financial products to use in building portfolios. Our clients don’t end up allocated to typical mediocre proprietary mutual funds, overpriced funds that paid to be on a ‘preferred list’ or other products that come packaged with conflicts of interest like sales charges. We screen for performance and risk characteristics only and this is the result. You get credit too for hiring us to select such great products.
Summer 2019 Project
As mentioned in a newsletter earlier this year, we will be updating all client financial data that is over three years old. If you started with Bullseye after January 2017, then we will not be reaching out to you, and you can disregard this notice. For the ‘old timers’ whose accounts started prior to January 2017 then will we be updating both your financial information and investment policy statement to ensure that we are meeting your needs. A change to your personal finances, circumstances, work status or risk tolerance could require a change to your accounts.
State regulators have told us that moving forward this will be a big initiative and they will insist that advisory firms have more current data on clients’ financial condition.
To assist with this project I have hired Noah Guthrie, and outstanding young man who attends the University of Cincinnati. He will be a part time assistant to help us complete this project and other administrative or marketing assignments. He may be emailing or calling to help you complete this information request. He will be using the email address: email@example.com and using a Bullseye phone number.
All data gathered related to this project will be kept confidential and secure. To increase security, we have decided to use the United Postal System. This will help keep your information confidential. If we mail you a form to complete, we will include a pre-addressed stamped envelope for returning the documents. All you will have to do is check all of the correct boxes and mail it back to us.
With some clients, this process will require a more in-depth discussion and we may need to schedule an appointment (phone or in person). For others whose circumstances have not really changed, the data gathering will be straight forward. Tim will try to identify those who will benefit from a personal discussion from those whose situations have not really changed, but you are welcome to discuss this process with Tim for any reason. We anticipate this process will find some opportunities to better match portfolios with client circumstances and goals.
The data requested will be sufficient for us to have a good picture of your financial position, investment goals and risk tolerance. We will not ask “what is your checking account balance?”, but will ask you to identify financial asset categories within a range; $0 - $25,000, $25,000 - $50,000, etc.
Thanks in advance for your cooperation in this endeavor! Please do not hesitate to contact us with any questions. How to Reach us
Main Office: Tim Guthrie, CFP, 431 Ohio Pike, Suite 214, Cincinnati, OH 45255
937-377-1234 (east of Cincinnati)
Ashland KY Office: Tim Guthrie, CFP, 1505 Carter Ave., Suite 300, Ashland, KY 41101
606-939-1196 (Ashland KY)
NE Ohio Office: Greg Spickard, 2474 Waterloo Road, Mogadore, OH 44260
Office Manager: Vickie Corpuz
Mailing address: P.O. Box 123, Milford, OH 45150