Quarter 3, 2015 Investment Brief

As of July 31, 2015, the S&P 500 had made a new high in 23 out of the previous 36 months (calculated by monthly total return; data is from Morningstar).  Then suddenly, the index lost 11.13% from August 18 to August 25.  Reports of volatility’s demise were greatly exaggerated. 

Seven years removed from the financial crisis, we do not believe that the core issue (excessive debt) has ever been fundamentally addressed.  Instead, the debt has been shifted to governments, and extraordinary monetary policy has been introduced in an attempt to resuscitate economic growth.  Ultra-low interest rates have served to inflate stock prices, resulting in large gains for those willing to take the risk.  We have taken a more cautious approach: employing mutual fund managers who buy potentially undervalued companies when they are available and holding cash when opportunities are scarce.  This has obviously proved less rewarding for the time being than simply owning the market.  Still, investing in every company out there, with no thought to profitability or risk (i.e. indexing), strikes us as a dangerous proposition given the confluence of high debt, high asset prices and central bank uncertainty.  

As can be seen in the chart below, stocks have been on an upward march for most of the last twelve months.  Admittedly, our funds did not participate much in this rally.  Though disappointing, this was not entirely surprising.  We do believe however that the funds held up relatively well in the downdraft since mid-August.

*As represented by 20% Russell 1,000, 20% Russell 2,000, 30% MSCI EAFE, 30% MSCI ACWI

Recent events have been a reminder that markets do not always go straight up.  We do not know whether this is actually the beginning of a significant downturn or merely a bump on the road to a new high.  We remain convinced however that ours is a prudent strategy for such a time as this.   

Aaron Pettersen, CFA, CFP®

Past performance is no guarantee of future results. Indices are not available for direct investment. All investing involves risk, including the potential for loss of principal.  There is no guarantee that any strategy will be successful.  The information contained herein is based on sources and data believed to be reliable, but is not guaranteed by NorthWest Financial Services, Inc. and is not to be construed as an offer or a solicitation of an offer to buy or sell securities mentioned herein.  It is provided as a courtesy for informational purposes only and is not intended to satisfy any compliance or regulatory conditions set forth by any governing body of the securities industry.  Mutual funds are offered by prospectus.  Before investing, you should read carefully the prospectus and consider the investment objectives, risks, charges and expenses.  A prospectus with this and other information may be obtained by calling our office at 317-844-0448.

The S&P 500 is an index of 500 large US companies having common stock listed on the NYSE or NASDAQ.  The Russell 1,000 measures the performance of the large cap segment of the US equity universe.  The Russell 2,000 measures the performance of the small cap segment of the US equity universe.  The MSCI EAFE Index is an equity index which captures large and mid cap representation across developed markets outside of the US and Canada.  The MSCI ACWI (All Country World Index) captures large and mid cap representation across developed markets and Emerging Markets countries.