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Thoughts in Charts: Recession Vs. Returns

Officially, a “recession” is defined as two consecutive quarters of negative Gross Domestic Product (GDP). GDP attempts to measure consumer spending, business investment, government spending, and net exports. Usually, we think of strong GDP as passing through to strong stock market conditions, but GDP and the equity market don’t always move in the same direction. In a few weeks, we will get official numbers on a massive quarter-over-quarter GDP drop; however, the U.S. stock market is looking past the current situation in anticipation of higher economic output in the second half of the year and beyond.

For disclosures, please click here.

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Thoughts in Charts: The Price of Food

Do you feel like your grocery bill is increasing? Your inflation intuition is correct. The Consumer Price Index (CPI-U) is the measurement of prices on a “cart” of general goods that most people use in their daily lives – think the cost of milk, meat, gas, and rent. While the price of this overall cart has not changed much in the last 12 months, the low percentage change is mainly because of the price dip in the energy portion of the metric. The price of food, on the other hand, has increased more than the 2% we expect in a normal year. As you hear more about inflation in the next few months, keep an ear out for the phrase “core inflation” as it excludes these more volatile food and energy prices.

For disclosures, please click here.

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Thoughts in Charts: What’s Your Style?

Not all segments of the market are created equal. The Russell 3000 Index, which represents most of the investible equity market in the United States, is down over 10% since mid-February; however, dissecting this larger index into smaller segments illustrates a much wider range of returns. As we navigate market allocation for our clients, the index returns in these catty-corner style boxes demonstrate the importance of evaluating style tilts within our portfolios.

For disclosures, please click here.

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Today’s Marathon: What a Marathon Taught me about a Pandemic

COVID-19 Map

It’s been over 10 years since I ran the Chicago Marathon, but I vividly remember mile-marker 13. Because of the feeling in that exact moment, I’ve run almost a dozen half-marathons, but never another marathon. I wasn’t close enough to the end to see the finish; in fact, I wasn’t even half-way. Despite having run 13 miles, I felt like absolutely nothing had been accomplished. That mile-marker has been on my mind a lot the last few days – reminding me of the mental strength of the marathon.

The thing is, before you run a marathon, you plan out the route. It really matters where you are in the race. Where do you refuel? Where are the hills? Where are the water stations? Where are the moments that you know you’ll need a little extra mental toughness? This plan helps carry you through, and so yesterday, I sat down and mapped out this COVID-19 marathon with the events of the last few months and the types of things that I think lie ahead.

As I filled in the items that have already happened in dark red and green, it became clear why mile 13 has been on my mind. Life has been shifted, disrupted, and stressed. Despite expending a ton of energy, it feels like very little has been gained. The green, the good news, has been pretty minimal while the bad news has been overwhelming. It’s mile 13 of the toughest race I’ve ever run. It feels defeating because, frankly, I can’t see the end.

As I continue graphing, I remember exactly why I needed to lay out the rest of the race. There are some remaining bright red challenges – huge and painful challenges that we will have to endure. When these events arrive, I’ll remind myself that “this is the hill you knew was coming.” I will stick with the plan I made before I was exhausted. I may tweak my pace, but I won’t change course.

Slowly there will begin to be more bright green moments than bright red – more good news than bad. Schools will re-open, science will catch up with the virus, government stimulus will deliver support, markets will stabilize, sporting events will restart. I’ll sit in my favorite restaurant, drinking my favorite cocktail after hugging my best friend.

There is one other moment from the marathon that stands out just as vividly as mile 13. A bit further into the race, a spectator yelled out “just a few more miles and you will be a marathoner.” I had never considered that I would be a “marathoner.” Of course, it had been my goal to finish the race, but it never occurred to me that this victory would add to my identity. This stranger brought things sharply into focus. I was a lot closer to the end than when I started. I had already overcome more than I realized. If I followed my plan and kept putting one foot in front of the other, I would finish this race – forever changed for the better.

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Gazing into the Crystal Ball

I love the “crystal ball” predictions at the start of every year. Please hear me, I’m a risk analyst and thus a skeptic by training, so I expect very few of these predictions to be correct. What I love about them, is that they bring up top topics of concern and of opportunity. These forecasts provide such a fertile starting spot to dig into the work by which we have been entrusted: managing the long-term balance between risk and return.

I’d like to share the types of conversations that these fortune tellers have sparked here at ThirtyNorth:

  • Can we expect market volatility in this election year? Our perspective here at ThirtyNorth is long-term, so short-term volatility in a period running up to an election is unlikely to change our investment strategy; however, elections create a period of uncertainty that deserves attention as we attempt to hold steady on our long-term objectives. In an incumbent election year, these volatility predictions remind us to keep our focus on policy shifts that may have long-term economic impact.
  • What are the risks and rewards within the growing BBB debt space? Although bonds with BBB ratings from Standard & Poor’s are viewed as investment grade, they have been assigned the lowest credit quality of this grade. Many are wondering if a large portion of BBB debt is at greater risk of default than implied by their ranking. As noted in a recent Barron’s article, some expect up to 20% of BBB, which equates to about $660 billion in debt, to be downgraded from investment to non-investment grade during 2020.1 This is not a new conversation at ThirtyNorth, as we have been working to minimize BBB debt in our investment grade fund selection for a while now. As these cards are still being read, we are examining who wins and loses with (and without) a large downgrade scenario.
  • Are Environmental, Social, and Governance (ESG) themed funds as advertised? With the expectation of large demand for ESG products, the marketplace is beginning to see a flood of products claiming to make investment decisions that promote ESG themes. As a firm with a mission to bring together money and meaning, we are excited for the opportunities to invest in products that are actively engaging companies on issues that our clients value; however, we are finding that fund ESG claims aren’t always reflected in their decision making. We are analyzing investment options, looking to engage with fund companies, and working on curating a list of funds that we find live out their stated mission.

You’ll hear more from us on these topics and others over the next few months, but as always, we would love to hear from you about the issues that make you feel encouraged or worried about your investments. Fortune tellers are always welcome here.

Sarah Bomhoff

1Jasinski, Nicholas. “A ‘Ponzi Market’ Is Developing in Corporate Bonds. Here’s What That Means.” Barron’s, Dow Jones & Company, Inc., 22 January 2020, https://www.barrons.com/amp/articles/bonds-corporate-high-yield-investment-ponzi-easing-central-banks-yield-squeeze-treasuries-51579641764

 

Disclosures:

  • All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. It should not be regarded as a complete analysis of the subjects discussed.
  • Information presented does not involve the rendering of personalized investment advice and should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Tax information is general in nature and should not be viewed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
  • Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. There are no guarantees that an investor’s portfolio will match or outperform any particular benchmark. Index returns do not represent the performance of ThirtyNorth Investments, LLC, or its advisory clients.
  • ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
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ThirtyNorth Investments Welcomes Mary Willis to the Team

We are delighted to introduce the newest member of our ThirtyNorth Investments team, Mary Willis.

Mary joins us as a Financial Associate and will focus on all investment and planning related activities, including portfolio analysis, investment monitoring, and research for our investment committee.  Mary previously served as an equity research associate at Johnson Rice & Company.  Mary’s experience included bottom-up and top-down analysis of stocks, as well as US and global macro-economic and market trends.

 

Mary earned a Masters in Energy Management from Tulane University’s Freeman School of Business.  She also obtained a B.A. in History with Honors (Energy Concentration) from Georgetown University, where she graduated Magna Cum Laude and as a member of Phi Beta Kappa.

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The Biggest One Day Loss Ever…Really?

After the recent volatility in the market, I once again recall a few reasonable tips that help me maintain a long-term focus on investing.

 

Tip Number 1 – First, although you may be watching the “financial” news or an “investing” expert on your local news, remember they are selling news first and foremost and shock value sells.  I always remind myself to take what I hear with a grain of salt.  Don’t get me wrong, I gather valuable information from the financial media.  However, when, like on Monday, February 5th, I hear experts on the news discussing the fact that the Dow dropped the most ever in a day, I take pause.  What does that really mean?

 

Once a drop in the Dow of 250 points seemed large, but is now only a 1% move.  This may feel painful when you look at your account balance, but volatility of this nature is normal in the stock markets even if we haven’t experienced it in a while.  As Blair duQuesnay, our Chief Investment Officer, reported Monday, February 5th, the 1,175 point drop, when measured in percentage terms, was not in the top 20 historical one day moves for the Dow (https://youtu.be/me7449asL_c).  In addition, the Dow is comprised of 30 mega-cap industrial US companies.  In today’s global world, this is a narrow list of companies used to measure a much larger universe of stock investment options.

 

While the Dow is a quick proxy to the markets that is discussed prolifically, for globally diverse investors with holdings in different asset classes including bonds and alternatives, a deeper dive is prudent on these days that are characterized in the press by fear and doom.

 

Tip Number 2 – This brings me to my second tip which is that you haven’t lost money in your account unless you sell.  I often hear pundits on the news talking about how much the market lost in a day.  The correct word, in my opinion, should be the amount the market declined.  Then, it might be easier to remember that over the long-term, back to the 1920s, the market has been on a steady incline only temporarily slowed by short-term declines.

 

Yes, the value of an investment on a given day may go down or up, but it is the long-term that really matters.  Historically, on average over the long-term, the stock market has gone up delivering positive returns in spite of days that get mischaracterized as the worst down day ever.  If, in a moment of fear, you sell, then you have locked in the loss.  However, if you hold for the long-term and achieve the expected growth, you should recover the temporary decline in value and more.

 

Owning a diversified portfolio that includes investments in different asset classes all over the world can effectively help manage the volatility of a portfolio as a whole when one asset class, like stocks, is suffering a temporary decline.  I included the cartoon above hoping to make you laugh, but also because many investors feel the market ups and downs most acutely in their 401(k) accounts.  Fear raises its ugly head here almost more than anywhere because we our retirement savings are at risk.  However, taking an appropriate amount of risk in your investment accounts is paramount to achieving a successful retirement.  This is why diversification is important to control the volatility while maintaining the right level of risk in your investment strategy.  Remember, it is time in the market that matters not timing the market that is most likely to help prevent us from having to live off our belly fat in retirement.

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Whitepaper Published in the IMCA Investments & Wealth Monitor

ThirtyNorth’s whitepaper “Impact of Women in Corporate Leadership: The Relative Stock Performance of Gender Diverse Boards” was published in the July/August edition of the IMCA Investments & Wealth Monitor. Co-authors Suzanne Mestayer and Blair duQuesnay submitted the paper for consideration of the Editorial Advisory Board in May.

Here is a description of the Investments & Wealth Monitor from IMCA’s website:

“IMCA’s Investments & Wealth Monitor is a bimonthly educational magazine written by award-winning authors throughout the financial industry. The members-only publication keeps IMCA members current through industry news and articles that provide education, insight, explanation, and coverage of key issues including the latest in academic, investment, legal and regulatory, business development, and wealth management topics.”

We are honored that our research was selected for publication in this prestigious journal.

Click here to view the article on IMCA’s website until August 31, 2017. You can also download the whitepaper by signing up for our email distribution list here.

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Women Impact Strategy Highlighted in Philanthropy Women

In late July, Suzanne Mestayer and Blair duQuesnay had a conversation about the Women Impact Strategy with Kiersten Marek from Philanthropy Women. Kiersten highlighted the strategy on July 25. Here is a small clip from the article titled “Want to Invest with a Gender Lens? Put this Woman-Owned Firm on your Interview List”:

“One of the realities of the industry is that many times, people are learning about other investment opportunities that align with their values, but they’re not necessarily hearing it from their existing financial advisors,” said Mestayer. “They’re either bringing it to the attention of their advisor, or they are taking some of their money and placing it differently.”

ThirtyNorth is looking to be one of those places where investors go to place their money differently, and be rewarded for understanding the value of women’s leadership in business.

We are excited about Kiersten’s new endeavor at Philanthropy Women and hope to see her success with the publication. To read the entire article click here. You may also want to sign up for Philanthropy Women’s email distribution list while you visit the site.

 

Rethinking the 4% Withdrawal Rate

ThirtyNorth talked with Jeff Benjamin at InvestmentNews about the rule of thumb of a 4% withdrawal rate being “safe” in retirement. Here’s a quote from the article:

“The seemingly endless debate across the financial planning industry over retirement withdrawal rates appears to hover over the consensus that 4% is a good place to start. Beyond that, advisers and analysts disagree about what amount is currently “safe,” and revert to a need for flexibility based on everything from Social Security income and health issues to home equity levels and market cycles.

“No one really knows what their safe withdrawal rate will be until they’re actually in retirement,” said Blair duQuesnay, chief investment officer and principal at ThirtyNorth Investments, which manages $135 million in client assets.”

Read the entire article on the InvestmentNews website. (login may be required)