July, 2018
ARE WE AT THE END OF THE BUSINESS CYCLE?
THE WORLD IS GETTING CLOSER TO A RECESSION
By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors
By Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc.
R
ising interest rates, among other indicators, have often preceded the end of economic expansions and equity bull markets. Among other telltale signs: a flattening yield curve, record corporate and household debt, an overheated job market and increased mergers and acquisitions (M&A) activity. So far in 2018, the value of global M&As has already reached $2 trillion, a new all-time high. The last two periods when M&As reached similar levels were in 2007 ($1.8 trillion) and in 2000 ($1.5 trillion), according to Reuters. Careful readers will note that those two years came immediately before the financial crisis and tech bubble.
As edited by Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.® The Global Recession Probability Model (on the top of page 11) looks at the probability of a global recession. It also analyzes all kinds of global economic data indicators. •
Note that while the U.S. (See the U.S. Recession Probability chart on the bottom of page 11) is in good shape, the probability of a global recession is rising.
•
The model is currently at 59.32, which is two points higher from the end of May, 2018.
•
A reading “Above 70” indicates the probability of a global recession is greater than 90.0% (note the data left of the red arrow).
Business Cycle, continued on page 4
RETHINKING MARKET-CAP WEIGHTING Equal-weighting of Stocks Versus MarketCapitalization Weighting: Which Is Better? By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors A change in the S&P 500 returns has occurred. Specifically, the performance difference between an equal-weighted basket of stocks and one that is stock market capitalization-weighted (cap-weighted) has changed. Over the longer-term period, equal-weighting has outperformed. More recently, though, market cap-weighting has pulled ahead. This is not unusual for late stock market cycle performance. Historically, equally-weighted baskets of stocks almost always outperform cap-weighted stock baskets coming out of recessions. However, now growth stocks (Facebook, Apple, Amazon, Netflix and Google) have made the S&P 500 top heavy. Today, these five stocks represent a highly concentrated 12.0% of the S&P 500, nearly double from their share just five years ago. Apple alone represents 4.0% of the S&P 500. Market-Cap, continued on page 4
Recession, continued on page 11
SHRINKING YIELD GAP By Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc. As edited by Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.® Professional investors are watching the shrinking gap between interest rates on two-year and ten-year U.S. Government Bonds (See the “Yields Spreads of Two-Year and Ten-Year Treasuries” chart on page 7.). This shrinking gap is known in the bond market as a flattening yield curve. A flattening yield curve oftentimes is a precursor of a recession. Shrinking Yield Gap, continued on page 7
THE GLOBAL INVESTMENT PULSE, July, 2018
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ABOUT LEGEND FINANCIAL ADVISORS, INC.®
Legend Financial Advisors, Inc.® (Legend) is a Non-Commission, Fee-Only, Fiduciary U.S. Securities 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 entities, medical practices and non-profit organizations as well as retirement plans. Legend and its award-winning advisors are Fiduciaries.
FIVE REASONS TO CHOOSE LEGEND 1. 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 Publications 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 chosen 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 allocate investments in an income tax-efficient manner.
ABOUT EMERGINGWEALTH INVESTMENT MANAGEMENT, INC.® EmergingWealth Investment Management, Inc.® (EmergingWealth), is the sister firm of Legend Financial Advisors, Inc.® (Legend) and is a Non-Commission, Fee-Only Securities and Exchange Commission (SEC) registered investment advisory firm. EmergingWealth provides Investment 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.
LOUIS P. STANASOLOVICH, CFP®, EDITOR Louis 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. 2
THE GLOBAL INVESTMENT PULSE, July, 2018
TARIFFS AND/OR TRADE WARS: POSSIBLE EFFECTS ON INDIVIDUAL STOCKS By Louis P. Stanasolovich, CFP速, CCO, CEO and President of Legend Financial Advisors, Inc.速 and EmergingWealth Investment Management, Inc.速 The Leuthold Group recently published a list of stocks that could be most affected potentially by tariffs and/or trade wars. Certainly, some will be more affected than others. Some may not be affected at all. In any event, the list is published below: COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.速
As Of: July 7, 2018 Copyright 2018 The Leuthold Group, LLC
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/stock-market
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Business Cycle, continued from page 1
However, late in the economic cycle, returns can still be substantial. The chart below highlights returns 24 months, 12 months, six months and three months leading up to the past eight market peaks. Obviously returns were higher in the longer-term periods, but even the three-month periods delivered some attractive returns.
S&P 500 INDEX RETURNS LEADING UP TO MARKET PEAKS
As of: June 15, 2018
Source: Standard & Poor’s, Barclays, FactSet, J.P. Morgan via U.S. Global Investors, Advisor Alert, June 15, 2018, www.usfunds.com REPRINTED WITH PERMISSION FROM U.S. GLOBAL INVESTORS
Source: This article was excerpted from “Take The Long-Term View In A Late-Cycle Market”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, June 15, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS
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Market-Cap, continued from page 1
Ten years ago, Facebook, Apple, Amazon, Netflix and Google, commonly known as the “FAANG” stocks—excluding Facebook, which wasn’t public yet—had a combined market capitalization (shares outstanding times price) of $390 billion, according to FactSet data. In 2018, they’re valued at more than eight and a half times that, or right around $3.32 trillion (Keep in mind the world’s financial market valuations are approximately $70 billion.). Market cap-weighted also means more money is disproportionately being reallocated to top winners such as Apple and Amazon, and so it becomes a self-fulling prophecy (In effect, you are buying yesterday’s news.). Theoretically, this leaves investors with too much exposure to these five companies that have already run-up in price. If the S&P 500 falls, those stocks would be the hardest hit in the event of a market downturn. There would be too little exposure to names and sectors (typically value-oriented stocks) that might rotate to the top in the next upward sloping stock market cycle. Source: This article was excerpted from “Take The Long-Term View In A Late-Cycle Market”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, June 15, 2018), www.usfunds.com COPYRIGHT 2018 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS 4
THE GLOBAL INVESTMENT PULSE, July, 2018
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DIVIDEND REINVESTMENT PLANS – DO THEY MAKE SENSE? By James J. Holtzman, CFP®, Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.® Dividend reinvestment plans of publiclytraded stocks have been getting a good deal of press over the last 15 years or so in a number of financial publications. What’s not to like about them? Dividends that are paid from a company’s stock can be used to purchase additional shares of that dividend paying stock without any commissions being paid. Sometimes shares may be purchased at a slight discount from current market prices. It used to be that the only way that investors could participate in these plans was to hold the shares directly and any reinvestment of dividends would have to be held in account form by the transfer agent of the stock. However, these days many brokerage firms are now offering dividend reinvestment on more and more corporations that have dividend reinvestment plans. Is this a good deal? From strictly an economic sense, it is. From a practical sense, it may not be. Why? For taxable investors, dividend reinvestment
plans can be a lot of work when calculating the cost basis of a stock when an investor sells shares. Why? Many transfer agents only provide you with a limited number of years of cost basis information on reinvested dividends. If an investor purchased the stocks prior to the oldest records that the transfer agent keeps, they will have to determine the cost basis themselves. This is not always an easy task because the investor will have to account for stock splits, purchases in sales of specific logs of shares and the monotonous calculation of little bits of shares being reinvested at various prices. Even if the investor has the “know how” as to how to calculate this information, they may not have the time nor the inclination. For a tax exempt investor, such as a pension or profit-sharing plan and/or an IRA account, a dividend reinvestment plan makes more sense. However, once again, it might not be for everyone. For instance, would any investor really want
to keep reinvesting money into a stock whose financial status is deteriorating? The answer is obviously no. Many individuals purchase stock at one point in time and then do not keep up on the economics of the company. In other words, they do not put in the necessary time reviewing the ongoing analysis that is necessary when investing in individual stocks. Another way to look at this is, would any professional investor such as a mutual fund portfolio manager having the stocks in his or her portfolio enroll in a dividend reinvestment plan? No! That does not occur. A portfolio manager would be looked at as having violated their fiduciary responsibilities. In this day and age, with the term “blue chip” being an outmoded concept, buy and hold does not always work and it may even be worse with a dividend reinvestment plan. COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®
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GOLD BULLION HAS HISTORICALLY RALLIED IN PERIODS OF HIGH INFLATION Annual Returns As A Function Of Inflation, 1970 To 2017 16% 14%
Nominal Return Real, Inflation-Adjusted Return
12% 10% 8% 6% 4% 2% 0%
Low Inflation (< 3%) As of: June 4, 2018 COPYRIGHT 2018 U.S. GLOBAL INVESTORS
High Inflation (> 3%)
Source: Bloomberg, World Gold Council, U.S. Global Investors, June 4, 2018, www.usfunds.com REPRINTED WITH PERMISSION FROM U.S. GLOBAL INVESTORS
THE GLOBAL INVESTMENT PULSE, July, 2018
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PROBABILITY OF A FED RATE HIKE IN SEPTEMBER 2018 AS OF: JULY 26, 2018
The Probability Of A Hike Continues To Increase With Another 56 Days To Go
As of: July 26, 2018
Source: Bloomberg COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®
PROBABILITY OF FOUR OR MORE FED RATE HIKES IN 2018 AS OF: JULY 26, 2018
This Probability Will Increase The Closer We Get To The September Fed Meeting
As of: July 26, 2018
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THE GLOBAL INVESTMENT PULSE, July, 2018
Source: Bloomberg COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®
Shrinking Yield Gap, continued from page 1
YIELD SPREADS OF TWO-YEAR AND TEN-YEAR TREASURIES JUNE 30, 2009 TO JUNE 30, 2018
As of: June 30, 2018
Source: Bloomberg COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.®
Currently, the U.S. economy appears to be in good shape (See the “U.S. Recession Probability” chart on the top of page 11.). However, the U.S. is not an island unto itself. A global recession will eventually cause the U.S. to catch a cold as well. Trade wars don’t help. Source: This article was excerpted from “No Recession In Sight”, by Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc., (On My Radar, July 10, 2018), www.cmgwealth.com COPYRIGHT 2018 CMG CAPITAL MANAGEMENT GROUP, INC. REPRINTED WITH PERMISSION OF CMG CAPITAL MANAGEMENT GROUP, INC.
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FED WATCH INTEREST RATES AS OF JULY 31, 2018 Fed Funds Rate Range: Fed Discount Rate:
1.75 – 2.00% 2.50%
2018 UPCOMMING FED MEETING SCHEDULE July 31 / /August 1
November 7-8
September 25-26
December 18-19 Source: Bloomberg Investment Services COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®
THE GLOBAL INVESTMENT PULSE, July, 2018
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FEDERAL RESERVE BOARD’S (FED) INTEREST RATE CYCLES
SINCE 1950 – 13 FED HIKING CYCLES, 10 LANDED IN RECESSION
FIRST HIKE
LAST HIKE
RESULT
October 1950
May 1953
Recession
October 1955
August 1957
Recession
September 1958
September 1959
Recession
December 1965
September 1966
Soft Landing
November 1967
June 1969
Recession
April 1972
September 1973
Recession
May 1977
March 1980
Recession
August 1980
December 1980
Recession
March 1983
August 1984
Soft Landing
January 1987
May 1989
Recession
February 1994
February 1995
Soft Landing
June 1999
May 2000
Recession
June 2004
June 2006
Recession
December 2015
???
???
As of: May 11, 2018 COPYRIGHT 2018 CMG CAPITAL MANAGEMENT GROUP, INC.
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THE GLOBAL INVESTMENT PULSE, July, 2018
Source: CMG Capital Management Group, Inc., On My Radar, May 11, 2018,www.cmgwealth.com REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.
ETF CREATION UNITS: A BASIC PRIMER By Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.® In the process of researching ExchangeTraded Funds (ETFs), a common term mentioned is “Creation Unit.” However, what exactly is a “Creation Unit”? An ETF is a basket of stocks (or other investments) that trades on a stock exchange is called a “Creation Unit”. A more accurate statement though, would be that ETF shares are fractions of creation units, which are baskets of stocks (or other investments) that trade on a stock exchange. In reality, if an investor wants to buy five shares of an Exchange-Traded Fund that represents the S&P 500, there is no way to do so without having an intermediary vehicle that represents the S&P 500 at a higher level and simply trading fractions of that larger investment. ETF shares are precisely this—small fractions of a much larger representation
of an index, which are called “Creation Units”. The way an ETF works is that when a company (commonly referred to as the “Sponsor”, such as Barclays, Guggenheim, Powershares, Blackrock, etc.) goes to initiate a new Exchange-Traded Fund, they establish a relationship with an “Authorized Participant”. The Authorized Participant is effectively the market maker that is enabled to create and redeem shares. Part of the agreement between the Sponsor and the Authorized Participant is the Creation Unit amount, which is the quantity of ETFs that will represent one creation unit. This number varies, but commonly is between 25,000 and 600,000 shares. From that point forward, the Authorized Participant is empowered to create and redeem shares by placing the securities the fund was designed to represent into a trust and then delivering
the shares of the ETF. The key is that this process can only take place in denominations of whole creation units. Similarly, individual investors (typically only institutional investors) can redeem their ETF shares for the underlying investments. While creation units are not highly relevant in the analysis of ETFs, it is important to understand that they are at the heart of what instills value in ETF shares. Without the ability to redeem ETF shares at some level, there is really no tie between the value of an index and an Exchange-Traded Fund designed to represent it. COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC.® PULSE
“Do You Want A Second Opinion?” 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 THE GLOBAL INVESTMENT PULSE, July, 2018
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HISTORY SAYS NOW MIGHT BE THE TIME TO ROTATE INTO COMMODITIES S&P GSCI-to-S&P 500 Index 10
SELL
9
SELL SELL
8 7 6 5 4
BUY
3 2 1 0 1970
1974
BUY?
BUY
BUY 1978
1982
1986
As of: July 13, 2018 COPYRIGHT 2018 U.S. GLOBAL INVESTORS
1990
1994
1998
2002
2006
2010
2014
2018
Source: Bloomberg via U.S. Global Investors, Advisor Alert, July 13, 2018, www.usfunds.com REPRINTED WITH PERMISSION FROM U.S. GLOBAL INVESTORS
MONTHLY RISK AVERSION INDEX (RAI)
RISK INDEX DECREASES SLIGHTLY-STILL NEAR LOWEST LEVEL EVER 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-risk assets.
4
4
3
3
2
2
1
1
0
0
1980
1982
1984
1986
1988
1990
1992
As of: July 7, 2018 COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
10
THE GLOBAL INVESTMENT PULSE, July, 2018
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/bond-market
REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
Recession, continued from page 1
U.S. RECESSION PROBABILITY MODEL BASED ON STATE CONDITIONS Monthly Data November 30, 1979 to May 31, 2018 Currently showing a near 0.0% probability of recession.
Shaded areas represent National Bureau of Economic Research recessions. Numbers indicate length of Leads (-) and Lags (+) in months from reference turning dates (Shown above) As of: July 6, 2018 COPYRIGHT 2018 CMG CAPITAL MANAGEMENTGROUP, INC.
Source: Ned Davis Research via CMG Capital Management Group, Inc., On My Radar, July 6, 2018, www.cmgwealth.com REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.
GLOBAL RECESSION PROBABILITY MODEL Monthly Data 3/31/1970 to 6/30/2018
As of: July 10, 2018 Source: Ned Davis Research, Inc. CMG Capital Management Group, Inc., COPYRIGHT 2018 CMG CAPITAL MANAGEMENT GROUP, INC. On My Radar, July 10, 2018, www.cmgwealth.com REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.
Source: This article was excerpted from “No Recession In Sight”, by Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc., (On My Radar, July 10, 2018), www.cmgwealth.com COPYRIGHT 2018 CMG CAPITAL MANAGEMENT GROUP, INC. REPRINTED WITH PERMISSION OF CMG CAPITAL MANAGEMENT GROUP, INC.
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BARCLAYS U.S. HIGH YIELD BOND YIELD MINUS TREASURY BOND YIELD 20
Differential Median: 5.03
15
10 Jun-18: 3.78
5
1987
1989
1991
1993
1995
As of: July 7, 2018 COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/bond-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
U.S. SMALL CAP TO U.S. LARGE CAP HISTORICAL PRICE TO EARNINGS (P/E) RATIO U.S. Small Cap Valuations More Expensive Than U.S. Large Stocks By 6.0%
120
120
110
110
100
100
90
90
80
80
70
70
60
60 1983
1986
1989
1992
As of: July 7, 2018
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THE GLOBAL INVESTMENT PULSE, July, 2018
1995
1998
2001
2004
2007
2010
2013
2016
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/market-internals REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
2.50
The Leuthold Group Copyright © 2018
Earnings Reports For Apr-Jun 2018 (Q1 2018 Results)
EARNINGS ADVANCE/DECLINE RATIO All Three Months Of Each Quarterly Period Based On Reported Earnings
2.25
2.00 SOFT LANDING
SOFT LANDING
1.75
AVERAGE 1.50
1.50
1.25
1.00 RECESSION
RECESSION RECESSION
0.75
0.50
0.25 84 85
86
87
88 89 90
91 92 93 94
95 96 97
98 99
00 01 02
03
04
05
06 07
08
09 10
11 12
13
14
15 16 17 18
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/market-internals REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
As of: July 7, 2018
MUNICIPAL TAX EQUIVALENT YIELD / BARCLAYS U.S. CORPORATE BOND YIELD
1.8
Yield Ratio Median: 1.15
1.6
1.4
1.2
1.0
Jun-18: 1.10
0.8
1980
1983
1986
1989
As of: July 7, 2018 COPYRIGHT 2018 THE LEUTHOLD GROUP, LLC
1992
1995
1998
2001
2004
2007
2010
2013
2016
Source: The Leuthold Group, LLC, Perception Express, July 7, 2018, http://leuth.us/bond-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC
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2018 YEAR-TO-DATE PERFORMANCE January 1, 2018 to June 30, 2018 (6 months) 2018 Year-To-Date Consumer Price Index (Inflation)
2.22%
90-Day Treasury Bills Index-Total Return
0.85%
Bloomberg Intermediate Term Corporate Bond Index
-0.97%
Barclays Aggregate Bond Index-Total Return
-1.62%
High Yield Corporate Bond Index – Total Return
-1.78%
S&P Leveraged Loan Index – Total Return
2.17%
HFRX Global Hedge Fund Index
-0.85%
S&P 500 Index (U.S. Stock Market)
2.65%
MSCI EAFE Index (Developed Foreign Equities)
-2.40%
MSCI Emerging Market Index (Equities)
-6.60%
Newedge CTA Index (Managed Futures)
-4.67%
Dow Jones–UBS Commodity Index-Total Return (USD)**
-0.86%
Dow Jones U.S. Real Estate Index-Total Return (USD)**
1.41%
Gold Bullion
-4.19%
As of: June 30, 2018 Compound and Total Returns include reinvested dividends. Newedge Index is equally-weighted. ** USD = U.S. Dollar COPYRIGHT 2018 LEGEND FINANCIAL ADVISORS, INC. ® Source: Bloomberg Investment Service
REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®
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THE GLOBAL INVESTMENT PULSE, July, 2018
SECULAR BEAR MARKET WATCH April 1, 2000 to June 30, 2018 (18 years and 3 months) Annual Compound Return
Total Return
Consumer Price Index (Inflation)
2.14%
47.19%
90-Day Treasury Bills Index-Total Return
1.55%
32.47%
Barclays Aggregate Bond Index-Total Return
4.82%
136.26%
High Yield Corporate Bond Index – Total Return
8.63%
352.97%
S&P Leveraged Loan Index – Total Return
4.92%
140.15%
HFRX Global Hedge Fund Index
2.43%
55.13%
S&P 500 Index (U.S. Stock Market)
5.34%
158.66%
MSCI EAFE Index (Developed Foreign Equities)
3.76%
96.18%
MSCI Emerging Market Index (Equities)
7.03%
245.74%
Newedge CTA Index (Managed Futures)
4.25%
113.83%
Dow Jones–UBS Commodity Index-Total Return (USD)**
-0.65%
-11.28%
Dow Jones U.S. Real Estate Index-Total Return (USD)**
10.48%
516.73%
8.60%
350.61%
Gold Bullion As of: June 30, 2018
Compound and Total Returns include reinvested dividends. MSCI Indexes do not include dividends prior to 2002. Newedge Index is equally-weighted. SECULAR BEAR MARKET WATCH (CONTINUED) ® COPYRIGHT 2018 LEGEND ** USD = U.S. Dollar April 1, 2000 to June 30, 2018FINANCIAL ADVISORS, INC. WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ® (18 yearsREPRINTED and 3 months) Source: Bloomberg Investment Service Note: During Secular Bear markets U.S. Stocks have historically returned a little more than inflation or a little less than inflation—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 Secular Bear markets since 1900 were 1901 to 1920 and 1929 to 1949. In both cases, the U.S. Stock market outperformed inflation 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 to indicate that we are in a Secular Bear market. Long-term returns (over the next 10 years) for the S&P 500 will probably be slightly worse than the last 18 years and 3 months. Current 10 year normalized P/Es (long-term valuations) indicate approximate annual compound returns of slightly less than 3.00% over the next 10 years. Of course during the next 10 years, returns during various periods will be significantly higher and lower than the expected return. For example, the more the stock market rises in the near term, the less returns after that period will be and vice versa.
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LEGEND FINANCIAL ADVISORS, INC.® & EMERGINGWEALTH INVESTMENT MANAGEMENT, INC.’S® INVESTMENT MANAGEMENT SERVICES 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 legend@legend-financial.com. 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 openend 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 legend@legend-financial.com. 16
THE GLOBAL INVESTMENT PULSE, July, 2018