After the downturn in 2008, we reexamined our philosophy of choosing investments we believed would provide some protection against down markets, while providing positive returns during the up markets. It was our hope that the funds would still provide “market-like” returns over a complete market cycle without all the volatility. Well, here we are 7 years later and the S&P 500 has been up every calendar year since 2008 without a down year. In essence, we have not had a complete market cycle since 2008 – only an up cycle.
Keeping this in mind and reviewing our funds allocation to cash, we are encouraged that they have as much cash as they do. I would like to remind you that the managers of your funds are not trying to time the market, but instead, find stocks that are selling at values lower than what they believe the company is actually worth. Since their cash levels are so high, it tells me they think there are many overpriced companies and too few underpriced.
We continue to communicate with the fund managers and review their largest holdings to see if they are adhering to a value centric philosophy. We don’t want to see our managers changing investment styles at a time, we believe, the market could be at the tail end of an up cycle.
At the moment, there are two funds that we have concerns with for different reasons:
- Ivy Asset Strategy fund – The lead fund manager is retiring at the end of June 2016. We do not have much data, at the moment, on the remaining investment team and their prior performance as lead managers.
- Fairholme fund – This fund has been on our minds for quite some time. We expect to see some progress made on several of their major holdings by the end of the year. If the progress is not satisfactory, we are prepared to pare back our holdings.
On a separate topic:
As many of you know, I have hired people over the last 5 years in preparation for my slowing down as I get older. My goal has always been to provide quality service for a reasonable fee. I have also known that without quality people to help me prepare for the inevitable slowdown, your service could suffer. Over the last several years Aaron, Matt and Thomas have been purchasing shares in the company to ensure continuity of NorthWest Financial’s future operations. They now own 39% of the company. Over the next few years, they will take a more prominent role in managing people and processes. This is not a retirement note, as Kate and I are still a couple of years away from slowing down. I am just trying to keep you informed of our process and let you know how pleased I have been in the progress of our staff. I also want to let you know I am thrilled to be your financial advisor, many of you for more than 20 years.
Bill Reno CFP®