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Exciting global economic news dominated the second quarter, yet financial markets recorded modest movements. The US stock market recorded a small, positive result, and the S&P 500 Index is up 1.23%. International stocks rose at first, but fell as Greece struggled to repay its debts. The MSCI EAFE Index is up 5.52% year to date. Emerging markets inched higher, and the MSCI Emerging Markets Index is up 2.95%. Real estate saw a major correction, particularly in the US, as interest rates rose. The S&P Global REIT Index is now down -4.09% for the year. Commodities gained, but the Bloomberg Commodity Index is still negative -1.56% through June 30.

In April, European stocks hit a new high, breaking a record set in March 2000. [1] The European Central Bank’s bond-buying program boosted European stocks. Although the Euro rose against the US Dollar to $1.19, it is well below its value of $1.34 a year ago. In May, France and Italy recorded positive GDP growth. France is the second largest economy in the Eurozone. Italy is the third largest.[2] European stocks retreated when Greece missed a payment to the International Monetary Fund. The broader outlook for the Eurozone economy remains optimistic.

The US economy contracted -0.2% in the first quarter. This was the Bureau of Economic Analysis’ third revision on June 24, 2015. [3] Falling exports caused much of the contraction. It is not clear if strength of the US dollar or a labor dispute at West Coast ports led to the decrease. For the fifth year in a row, first quarter GDP was negative. In each of the previous five years, annual GDP growth was slow but positive. The Federal Reserve Board reduced its GDP forecast in March and again in June. [5] Chairman Janet Yellen signaled the Fed will still raise rates in 2015. Yellen stated to Congress in mid July:

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds target”. [6]

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Blair duQuesnay named to InvestmentNews “4o Under 40” list for 2015

New Orleans, LA (June 22, 2015)– Blair duQuesnay, Chief Investment Officer and Principal of ThirtyNorth Investments LLC, has been selected to InvestmentNews annual list of the Top 40 Under 40. This award recognizes 40 professionals under age 40 in the investment and financial planning industry across the nation, and the finalists were selected from an initial pool of 1,200 nominees.

The roles played within the industry of this year’s winners span from investment management, to media, financial technology and taxation. All recipients of InvestmentNews Top 40 Under 40 are being recognized as leaders nationally for their accomplishments, contributions to the industry, leadership and promise.

“Our 40 advisers and associated professionals are making a difference today,” said Christina Nelson, managing editor of InvestmentNews. When asked about the competition among the 1,200 nominees, she added “We had a tough time narrowing down the pool to just 40 – and that’s good news.”

Blair duQuesnay received a Finance degree from the University of Georgia’s Terry College of Business. She is also a Chartered Financial Analyst (CFA) charterholder and a CERTIFIED FINANCIAL PLANNER™. Blair provides frequent insights into the investment and financial planning industry, across print, broadcast and social media.

The entire list of InvestmentNews 40 Under 40 can be found by clicking here:

 

 

Did you know there is a triple tax-free way to save for medical expenses? Perhaps the media hoopla over the Affordable Care Act (aka Obamacare) these past five years has overshadowed the potential of Health Savings Accounts (or HSAs). Individuals or families who are covered by high-deductible health plans are eligible to contribute to HSA accounts with pre-tax dollars. These accounts may invest in stocks and bonds, grow tax-deferred, and qualified distributions are tax and penalty free.

HSAs were created by the 2003 legislation, the Medicare Prescription Drug, Improvement, and Modernization Act signed by President George W. Bush. To qualify for an HSA, an individual must be covered by a high-deductible health plan (described later), have no other health coverage, not be enrolled in Medicare (so under age 65), and not be claimed as a dependent on another’s tax return. In 2015, the minimum annual deductible is $1,300 for single coverage and $2,600 for family coverage. This means you must pay the first $1,300 / $2,600 of your medical expenses out-of-pocket, something many Americans are unaccustomed to doing. Individuals may contribute up to $3,350 to an HSA in 2015, and families may contribute up to $6,650. There is an additional $1,000 catch up contribution for individuals over age 55.

Unlike its predecessor the Medical Savings Account (MSA) an HSA account may accumulate funds, with no requirement to spend contributions in the same year. Better yet, individuals may invest HSA account funds in stocks and bonds, and the earnings inside the HSA are tax-deferred. Withdrawals for qualified medical expenses are tax and penalty free, while nonqualified withdrawals are subject to income tax and a 20% penalty before age 65. The HSA is essentially a personal IRA (individual retirement arrangement) for medical expenses both today and in retirement.

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ThirtyNorth Chief Investment Officer Blair duQuesnay was a guest on New Orleans’ local television program The 504 with host Sheba Turk on June 9, 2015. She discussed tips for building wealth early. The program aired on WUPL MY54 (Cox Channel 2, Charter 16)

Click here to view the segment on WWLTV.com.

The first quarter of 2015 was mostly positive for global financial markets. In a reversal of roles, US stocks lagged the rest of the world with a 0.95% return. International developed stocks, boosted by the announcement of the European Central Bank’s version of quantitative easing, were up 4.88%. Stocks in emerging markets were up 2.24% in the quarter. Bonds continued to muddle along and were up 1.61% for the quarter. Interest rates declined sharply during the quarter but recovered to levels similar to year-end by the end of March. Global real estate, measured by the S&P Global REIT Index was up 3.85%, while commodities continued their slide down -5.94% year to date.

Central Bank Policies Diverge     

On January 22, the European Central bank announced its version of quantitative easing, a bond buying program of 60 billion per month through at least September 2016. The goal of the ECB’s program is to stabilize prices by raising inflation to at least 2.0%.[1] While the ECB hopes to accelerate an anemic economic recovery since 2013, bank President Mario Draghi clarified the limitations of monetary policy saying, “What monetary policy can do is create the basis for growth. But for growth to pick up, you need investment; for investment you need confidence; and for confidence, you need structural reform.”[2] It remains to be seen whether ECB countries such as Spain, France, Italy, or Greece, facing political opposition and high rates of unemployment, can find any consensus on structural changes.

Meanwhile, the Bank of Japan continues arguably the largest quantitative easing program, dubbed Abenomics for its mastermind Prime Minister Shinzo Abe. Although the program saw progress towards its 2.0% inflation goal in 2014, Japan’s most recent consumer-price index hit 0% in March. To date, the Bank of Japan has purchased ¥150 trillion, with the BOJ’s balance sheet equal to 66% of Japan’s GDP.[3]Prime Minister Abe’s attempts at structural reforms have so far been muted despite his political party winning control of the Diet in the mid 2013 elections.

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Global market performance in 2014 was a mixed bag of results. US stocks were up, and large cap stocks outperformed small caps. The S&P 500 Index returned 13.69% for the year while the Russell 2000 Index (US small cap stocks) returned 4.89%. International and emerging market stock returns were negative for the year, punished by a rising US dollar. The MSCI EAFE Index was down -4.90%, and the MSCI Emerging Market Index was down -2.19%. To the surprise of everyone, US interest rates continued their decline in 2014. Bonds, measured by the Barclays Aggregate Index, were up 5.97% for the year. Declining interest rates boosted global real estate performance, and the S&P Global REIT Index was up 21.54%. Oil’s dramatic decline caused the Bloomberg Commodity Index to fall -17.01%.

Oil

Oil prices took a dramatic plunge, which began in late July and was exacerbated by OPEC’s (Organization of Petroleum Exporting Countries) November decision not to cut production. WTI (West Texas Intermediate) Crude began the year at $93.11/barrel, peaked in late June at $107.95/barrel, and fell to $53.45/barrel by year-end.[1] That is a 50% decline in six months! As of this writing, the price has fallen below $50/barrel.

While there are many speculative theories about the price decline, the reason may be as simple as a mismatch of supply and demand. Global production of petroleum products is currently higher than global demand. The current gap between production and consumption is roughly 500,000 barrels per day.[2]

U.S. crude oil production has increased from 5.4 million barrels per day (MMbpd) in January 2010 to 9.0MMpbd in October 2014, an increase of 66%.[3] While the drop in gasoline prices is welcomed by consumers at the pump, current prices will likely cause a slow down in capital spending on new oil production projects in the US. It’s important to remember there are both winners and losers in a lower oil price environment. Oil importing countries such as the US, Japan, China, and western Europe benefit from lower prices. Exporting countries are the losers, including Russia, Venezuela, Nigeria, Iran, and the Persian Gulf states. Oil prices will likely find equilibrium over the next two years as producers slow investment in new projects and older wells experience production declines or go offline. Oil importing countries may see a boost in demand as lower prices help their economic growth.

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Every now and then, I talk to a potential client who asks why we use mutual funds. The tone of the question is usually derogative, as if there is something inherently wrong with the mutual fund structure. I get the impression these individuals feel they deserve something “better” than mutual funds. Since our portfolios are comprised of mostly mutual funds and ETFs, naturally I wanted to know why these feelings about mutual funds persist. Here are some of the objections I found.

Mutual funds charge high fees. This objection to mutual funds is partially true, but industry-wide, fees are trending lower. The average stock fund expense ratio fell from 0.99% to 0.74% between 2000-2013. Similarly, the average bond fund expense ratio fell from 0.76% to 0.61% during same time period.[1] However, mutual fund expenses of 1.50% – 2.00% are not uncommon, and high fees do reduce investor returns, sometimes significantly. At the heart of the fee argument is the notion that an investor can buy the individual stocks themselves, without paying an ongoing management fee. “Why should I pay a fee, when I can do it myself?” The Do-it-yourself mentality is pervasive in investing. Vanguard Group estimates that 25% of all investors prefer to do it themselves.

Response: Appropriately priced mutual funds are an excellent vehicle for a group of investors to share in the cost of investing in a large number of stocks, bonds, or alternative investments. There are low priced mutual funds available in every segment of the market. Avoid paying sales-loads, and instead look for no-load or institutional share classes of mutual funds. Refer to the average expense ratios mentioned above and search for funds with less than average expenses. Remember though that price is not the only factor in selecting a fund. Funds in certain parts of the market such as small cap international stocks, commodities, or managed futures have higher expense ratios because there are higher costs involved in investing in these markets. Focus instead on the weighted average expense ratio of your portfolio as a whole.

Mutual fund managers don’t beat their benchmarks. There is also some truth in this argument against mutual funds. Over a 10-year period ending December 31, 2013, only 19% of stock mutual funds outperformed their stated benchmark. A look at the data also shows that recent outperformers generally slide into the bottom of their categories in subsequent periods.[2] In other words, strong track records fail to persist. Based on these numbers, an investor has an 80% chance of underperforming the benchmark when investing in a mutual fund. Underperformance adds another layer of potential worry for investors. Instead of simply picking the right stocks, the investor now has to pick the right fund manager. There’s also a loss of control element to turning the individual security selection over to a mutual fund manager.

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“Everybody has a plan until they get punched in the mouth.”

– Mike Tyson

The month of October hasn’t been kind to many investors. What started off as a series of body blows eventually culminated with a swift uppercut last Wednesday, October 15th. A minor move upward, followed by a weekend of football and my 1 year old daughter’s birthday party gave me a moment to digest what transpired over the previous week. As investors, we all know that ups and downs are part of the process. Even what feels like large swings, although unsettling, is just the efficient way in which individuals and entities across the globe express their opinions on risk versus return in the capital markets.

One benefit to periods like this is that it lets us honestly evaluate if we have been swimming without bathing suits. When the tide goes out, mistakes can easily be exposed. This is the time your own portfolio should be looking itself in the mirror and confirming its own plan…

Revisit your expectations:

Nick Saban can’t win the BCS every year. The S&P 500 Index can’t repeat 2013 every single year either. Expectations of market performance are ok when looking at 10 and 20-year time horizons. Annual expectations may simply cause you undue stress and make you prone to mistakes. Now is a good time to seriously ask yourself what your investment goals are within your portfolio. If you are looking for aggressive growth, then you must be prepared to mentally (and financially) handle these kinds of market swings. If you start to lose sleep over it, then consider a more conservative approach.

Benefits of diversification:

We preach it a lot at our firm, but proper asset allocation and diversification proves its mettle in times like these. Yes, having a diversified portfolio means you’ll most likely not capture all of the near 30% S&P 500 Index rally like last year. It also hopefully means you won’t capture 100% of the decline of a single index either.

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For the first time in almost three years, global financial markets cooled during the third quarter, particularly during the month of September. US large cap stocks, measured by the S&P 500 Index, lost -1.4% in September, but year to date are up 8.34%. A broader measure of the US stock market, the Russell 3000 Index lost -2.08% in September and is up 6.95% for the year. International stocks, hurt by strength of the US dollar, have returned -1.38% year to date. The MSCI Emerging Market index was down -7.41% in September but remains positive for the year at 2.43%. Interest rates increased slightly in September, causing the US Aggregate Bond Index to lose -0.68% for the month. Bonds are up 4.10% year to date. Global real estate continues to shine; the S&P Global REIT Index is up 10.81% through the third quarter. Commodities took the largest hit for the quarter and are now down -5.59% for the year.

Practically all of the news on the US economy was positive during the quarter. The third revision for second quarter Gross Domestic Product (GDP) showed that the economy increased at an annual rate of 4.6%. This follows a decrease of 2.1% during the first quarter of 2014. [1] The September jobs report showed that employment rosters increased by 248,000 for the month, and that the unemployment rate dropped to 5.9%. On average, the US has created 213,000 jobs per month over the past year.[2] The Federal Reserve Bank’s long-term estimate of full employment is 5.4%, which means we are just 0.5% from normal levels of employment.[3] US household net worth reached another all-time high of $81.5 Trillion in the second quarter.[4] More than five years into the current economic recovery, might we finally be ready to believe it?

Dollar Strength

Strength in the US economy signals a likely impending increase in interest rates, causing the US dollar to surge during the third quarter. The US Dollar Index, which measures the dollar against a basket of major global currencies, soared nearly 8% between June and late September.

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ThirtyNorth Chief Investment Officer Blair duQuesnay recently contributed to an article in the Wall Street Journal discussing how investors should streamline their accounts and financial lives.

Read Clean Up That Cluttered Portfolio: How Simplifying Your Investments Can Help You by Tom Lauricella