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Fourth Quarter 2018 Commentary

What a Difference a Year Makes

While the stock market correction in the fourth quarter dominated headlines, the real news in 2018 was that the vast majority of asset classes produced negative returns. According to a Deutsche Bank study, 90% of the 70 asset classes they track delivered negative returns for 2018—the highest percentage as far back as 1901, when they began tracking the data. This is in stark contrast to the prior year when almost all asset classes had positive returns.

While these extremes in performance are dramatic, the most important takeaway, in our opinion, is that most traditional asset classes moved in the same direction in both years. We have often talked about the ineffective diversification that traditional (i.e., stock and bond only) portfolios have provided in recent years and may potentially provide going forward. This lack of diversification benefit is welcomed by investors in years like 2017, when everything is up, but less so in years like 2018, where everything is down without there really being anywhere to hide.

The Dual Narratives of 2018

Looking more closely at 2018’s performance, two polar opposite narratives dominated the beginning and the end of the year. The U.S. markets began 2018 with high hopes that tax reform and deregulation would drive an acceleration in the rate of capital investment, thus improving productivity and bolstering economic growth and corporate earnings outlooks. According to Bloomberg, while tax reform has been positive on the margin for capital spending, a large share of the tax windfall has been allocated to corporate share repurchases (i.e., financial engineering). While tax cuts contributed to the rally in the first nine months of the year, it was short-lived as earnings slowed as a result of the lack of investment in productivity. Most indices severely corrected in the fourth quarter and ended the year down or flat. The one bright spot for in the quarter was gold, which acted as an effective hedge during this period of market stress. The table below summarizes the fourth quarter and year-to-date (YTD) performance for selected indices.

We have frequently been asked to comment on what caused the U.S. market’s swoon in the fourth quarter. There was certainly no shortage of potential problem areas: the Fed raised interest rates by 25 basis points (0.25%) for the fourth time in the year, trade tensions with China continued, global economies started showing signs of slowing down, the Democrats took control of the House but the Republicans maintained their majority in the Senate, the White House experienced continued personnel turnover, and there was even a partial government shutdown late in December. None of these events, in our opinion, were significant enough to be considered a catalyst for the market downturn, however. Interest rates have been on the rise for the better part of three years, trade tensions dominated headlines for much of the year, and political uncertainty has been evident almost on a daily basis. Rather than pointing to any one event as the cause of the downturn, it seems most likely to us that markets simply got ahead of themselves in 2017 and the first nine months of 2018. Looking forward, we anticipate that there could be further volatility as the stimulus from tax cuts and government spending wanes and both economic and corporate profit growth rates decelerate.

Morton Capital’s Approach

In our year-end communication regarding the recent market volatility, we emphasized our core beliefs as it pertains to developing long-term plans and managing our clients’ portfolios. Undoubtedly, the markets become more difficult to navigate late in the business cycle, as markets search for new equilibrium and more rational valuation levels. Our core beliefs have helped guide us through challenging markets in the past, and we believe will do so again going forward. Our core beliefs encompass the following:

    • Risk Management

    Investors have to take risk to make money, but deciding what type of risk and how much to take given certain environments can be key to long-term success. In the current environment, where we believe valuations are elevated, the key is finding investments where we have conviction that the return potential justifies the risk being taken. Over the last few years, we have been reducing our exposure to traditional asset classes as euphoric investors have bid up prices and chased yields. These allocations have typically gone to more lending-related strategies, where we believe investors can make relatively attractive returns without having to suffer through stock-like volatility. Where appropriate, we have also increased our allocations to private alternative investments, where there can be a premium for taking on illiquidity.

    • True Diversification

    We define a truly diversified portfolio as one with multiple drivers of return. If stocks and bonds have the potential to move in lockstep during a downturn, then a broader and more dynamic alternative approach to diversification is necessary to be effective. While lack of access and due diligence expertise may keep other firms from investing in alternatives, Morton Capital has been at the forefront of incorporating innovative asset classes such as real estate equity, private lending and reinsurance into our clients’ portfolios. These asset classes should not move in lockstep with the market and should better manage risk if we encounter a sustained correction.

    • Cash Flow

    In designing our client portfolios, we have always shown a preference for investments that can generate immediate or reasonably fast cash flow. While long-term buy-and-hold strategies can be successful, we prefer to be paid while we wait. In the current low-interest-rate environment, we have tilted our public stock portfolio to more dividend-paying stocks and have sought higher levels of cash flow in the private lending space as a replacement for traditional low-yielding bonds. We believe these cash flow-focused assets, especially in the private lending space, will generate more attractive and consistent outcomes for our clients while simultaneously supporting their lifestyles.

Follow Your Plan—Reacting Can Hurt Performance

At some point or another, we have all experienced the frustrating gridlock on the 405 or 101 freeways during rush hour. While traffic is slow for everyone, some drivers keep changing lanes hoping to get ahead. We, on the other hand, stay in our lane and end up passing them a little down the road. Given the heightened levels of volatility and the associated uncertainty, it is understandable that emotions may run high, causing investors to make changes to their portfolios. It is widely studied that one of the costliest mistakes investors make is to sell some of their riskier holdings and hope to buy them back later when things get “better.” Dimensional Fund Advisors has performed a study on the returns of the S&P 500 Index from 1990 to the end of 2017 to prove that market timing is a futile practice. As illustrated in the graph below, if investors missed the 25 single best days in the market during this timeframe, their annualized return would have dropped from 9.81% to 4.53%. Such underperformance will undoubtedly have a major adverse impact on an investor’s financial plan.

Forecasting the future path of the markets or the economy is never easy, and we are not in the business of predictions. As your partner and advisor, we can, however, encourage you to stay disciplined and not overreact to short-term volatility in the markets. In developing a plan to meet your financial goals, we have considered your objectives, income, cash flow requirements, and tolerance to assume risk. Maintaining a diversified portfolio and target asset allocations consistent with our philosophy is an important discipline. While there is an urge to want to be active and make changes, the reality is that every decision is an active decision, including a decision not to make changes.

Please do not hesitate to contact your Morton Capital wealth advisory team if you have any questions or would like to review your portfolio or plan in more detail. As always, we appreciate your continued confidence and trust.

Morton Capital Investment Team

 

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Disclosures: This commentary is mailed quarterly to our clients and friends and is for information purposes only. This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author and are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital (MC) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information. Any performance information contained herein is for illustrative purposes only.

Certain private investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. Q4 returns shown are from 09-28-2018 through 12-31-2018 and the 2018 Year-To-Date returns are from 12-29-2017 through 12-31-2018. Index returns shown do not reflect the deduction of any fees or expenses. The volatility of the benchmarks may be materially different from the performance of MCM. In addition, MCM’s recommendations may differ significantly from the securities that comprise the benchmarks. Indices are unmanaged, and an investment cannot be made directly in an index.

Past performance is not indicative of future results. All investments involve risk including the loss of principal. Details on MCM’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

Morton Capital Perspective on Recent Market Volatility

“The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffet

The markets have been on a roller coaster ride recently, but now is not the time to get off—it is time to be patient.  While we understand that fear is a natural result of uncertain times, it is important to remember that market corrections, and even recessions, are a natural part of the market cycle.  In this article we answer three key questions that we have been asked in recent weeks, including our thoughts on the economy, the markets and the recent volatility.

What is happening in the markets?

If you’re expecting more volatility, why not sell stocks now?

What is Morton Capital’s approach given this uncertainty?

READ OUR FULL ARTICLE HERE

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Disclosure: This communication is for informational purposes only. Any investment strategy involves the risk of loss of capital. Some alternative investment strategies discussed are limited to qualified eligible investors. Past performance does not guarantee future results. 

Senior Vice President, Joseph Seetoo, recognized as a finalist in the 2018 Trusted Advisors Awards by San Fernando Valley Business Journal.

Congratulations to Senior Vice President Joseph Seetoo, on his becoming a finalist for the San Fernando Valley Business Journal’s Trusted Advisors Awards. This annual event honors attorneys, accountants, business bankers, insurance professionals and wealth managers in the greater San Fernando Valley region for their commitment to high quality client service and overall excellence.

At the award ceremony, hosted on August 9thpublisher Charles Crumpley commented “This event helps to recognize the importance of the relationships they have developed with their clients as they guide them through this complex business environment,” Crumpley said in his opening remarks. “Everyone understands that in these industries, professionals have to help their clients comply with rules and regulations. But it is those rare individuals who do that but also combine market knowledge with superior service to help their clients thrive and achieve. And many of them go way above and make significant contributions to our community.”

We are incredibly proud of Joseph and his relentless pursuit of excellence in both client service, and as a leader within our team. In 2017 Joseph was also awarded the Wealth Management – Trail Blazer Award by the San Fernando Valley Business Journal.

Read more here

Disclosures:

San Fernando Valley Business Journal (“SFVBJ”) Trusted Advisors is an independent listing produced annually by the SFVBJ. The award is based on data provided by individual advisors and their firms. Only advisors who submitted information are included for consideration, and investment returns are not a component of the rankings. The award is based upon a recipient’s application and not upon any qualitative and quantitative criteria relating specifically to one’s position as an investment advisor. As such, the award is not representative of any one client’s experience. This award does not evaluate the quality of services provided to clients and is not indicative of the investment advisor’s future performance. Neither the RIA firms nor their employees pay a fee to the SFVBJ in exchange for inclusion in the Trusted Advisors awards.

Quarterly Insights Q2 2018

Quarterly Insights – Q2, 2018

SECOND QUARTER 2018 COMMENTARY 

The first half of 2018 has seen the return of volatility with somewhat uneven end results. While domestic equities (S&P 500 Index) rebounded somewhat in the second quarter, both developed international (MSCI EAFE) and especially emerging markets (MSCI EM Index) suffered losses. “Conservative” core bonds were only down small for the quarter, but are still at a meaningful loss for the year. From a high level, it appears that U.S. stocks are the positive outlier amongst these traditional asset classes. However, when you dig a little deeper, U.S. stocks are also showing signs of strain. Though the S&P 500 Index is up 2.7% for the year, the strong results of only a handful of stocks are masking the mixed performance of the rest. Specifically, if you remove the top 10 performing stocks for the year (most of which are in the technology sector), the S&P 500 would have a negative return. 

There are undoubtedly short-term positives in the economy today: the tax cuts have provided a pickup in economic growth and the labor market continues to be strong. However, the longer-term concerns are still there, including record-high debt (at the government, corporate and consumer levels), as we go into a cycle of increasing interest rates and inflation. 

The table below summarizes the second quarter and year-to-date (YTD) performance for selected indices. 

Index Q218 YTD Large U.S. Companies (S&P 500 Index) 

+3.4% 

+2.7% 

Small U.S. Companies (Russell 2000 Index) 

+7.8% 

+7.7% 

Developed Foreign Markets (MSCI EAFE Index) 

-0.9% 

-2.4% 

Emerging Foreign Markets (MSCI EM Index) 

-7.8% 

-6.6% 

Core U.S. Bonds (Barclays U.S. Aggregate Bond Index) 

-0.2% 

-1.6% 

Catastrophe Bonds (Swiss Re Global Cat Bond Index) 

+1.4% 

+3.2% 

Commodities (BBRG Commodity Index) 

-0.1% 

-0.9% 

Gold Spot (USD/Ounce) 

-5.4% 

-3.8% 

Hedge Funds (HFRI Fund of Funds Composite Index) 

+0.8% 

+1.0% 

Source: Bloomberg. Please see important disclosures at the end of this commentary.

Tariffs – A Historic Perspective

With talks of trade wars and tariffs taking center stage in the past few months, we thought it would be beneficial to provide a brief historic overview of tariffs, the rationale behind them, and whether or not they are effective policy tools. A tariff is simply a tax imposed by a nation on an imported good. This tax, in effect, increases the price of the imported good, thus giving the competing domestic good a relative price advantage. The first tariff ever levied by the U.S. government was the not-so-disguised Tariff Act of 1789. The primary objectives of the Act were to lower the U.S. debt load and to protect manufacturers. These were clearly stated in the Act:

Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufacturers, that duties be laid on goods, wares and merchandise . . .”

While on the surface it may seem like tariffs should be pro-growth for the domestic economy, history has shown that it is not that simple. For example, the Tariff Act of 1930—known as the Smoot-Hawley Tariff—increased tariffs at unprecedented rates. The bill, which was signed into law by President Herbert Hoover over many protests from the economists at the time, was designed to protect the U.S. economy and encourage domestic spending. In retaliation, European countries imposed their own tariffs on U.S. goods. This resulted in a trade war that many believe was a major contributing factor leading to the Great Depression.

Are All Trade Deficits Bad? – Goods vs. Services

The current U.S. administration has used our trade deficit as the rationale for why tariffs are necessary to equalize global trade. The argument is that our large trade deficit reflects an uneven playing field in global production where we cannot compete with the subsidized, low-cost producers in countries like China. While there is some logic to this argument, again, it is not that simple. Trade imbalances are not necessarily a reflection of countries’ trade policies, but rather are impacted by a number of macroeconomic factors, such as the relative growth rates of countries, the relative values of currencies, as well as those countries’ savings and investment rates.

It is also important to put the U.S. trade deficit in context, both in terms of its size and nature. According to the Bureau of Economic Analysis, and as illustrated in the below chart, the latest monthly trade deficit figure was $46.2 billion, which translates roughly to only 2.9% of U.S. GDP (gross domestic product) on an annualized basis.

U.S. Trade Balance of Goods and Services vs. GDP – Source: Bloomberg

While all the talk has been of our goods deficit, there has been little focus on the positive part of the picture: namely, our rapidly increasing trade surplus in services. While the U.S. has a trade deficit in goods with numerous countries, it actually enjoys a trade surplus in services with many of those same countries. The chart below shows that this service surplus has more than tripled in the last two decades.

Source: U.S. Bureau of Economic Analysis, fred.stloiusfed.org

In fact, service industries now account for over 70% of U.S. jobs. The trend toward service exports reflects our strength as a country in areas such as finance, insurance, sales from intellectual property, and travel and transportation. The current emphasis on bringing back manufacturing jobs seems to be focusing more on fixing our weaknesses rather than capitalizing on our continually growing strength in these service sectors.

MC Client Commentary – July 2018 | 3

We Do Not Predict – We Prepare

The U.S. financial markets’ reaction to the proposed tariffs has so far been somewhat muted. The economic data and company earnings have been relatively strong, so perhaps the markets do not believe the uncertainty associated with these actions will lead to disruptions in the economy. The truth is that no one knows yet what the impact of these policies will be. Our concern is that, ultimately, no one wins in a trade war: global growth is the loser across the board.

While we cannot predict where the financial markets will end up for the year, we do expect more episodic volatility in response to this type of political uncertainty. The reality is that we cannot structure our client portfolios to be immune from this volatility or any future dislocation that may result. What we can do, however, is evaluate risk and overweight those asset classes where we feel we are best being paid for the risk we are taking. Whenever possible, we look to incorporate investments with the ability to generate returns that are not solely reliant upon economic growth or low interest rates for their success. The more varied the drivers of returns in a portfolio, the better we sleep at night.

Please do not hesitate to contact your Morton wealth advisory team if you have any questions or would like to discuss your portfolio in more detail. As always, we appreciate your continued confidence and trust.

Morton Capital Investment Team

 


Disclosures: This commentary is mailed quarterly to our clients and friends and is for information purposes only. This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital Management (MCM) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information. Predictions, projections and forecasts contained herein may not be indicative of actual future events and are subject to change without notice.

Certain private investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. Q2 returns shown are from 03-29-2018 through 06-29-2018 and the 2018 year-to-date returns are from 12-29-2017 through 06-29-2018. Performance shown does not reflect the deduction of any fees. The volatility of the benchmarks may be materially different from the performance of MCM. In addition, MCM’s recommendations may differ significantly from the securities that comprise the benchmarks. Indices are unmanaged, and an investment cannot be made directly in an index.

Past performance is not indicative of future results. All investments involve risk including the loss of principal. Details on MCM’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

Senior Vice President Joseph Seetoo, awarded the Wealth Management – Trail Blazer Award by the San Fernando Valley Business Journal

Congratulations to Senior Vice President Joseph Seetoo, who was recently awarded the Wealth Management – Trail Blazer Award by the San Fernando Valley Business Journal. Joe’s reputation of excellence, integrity and going above-and-beyond for our clients are just a few of the many reasons why he is considered a trusted advisor by many at Morton Capital. Congratulations Joe!

JosephSeetoo_SanFerandoBusinessJournal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclosures:

San Fernando Valley Business Journal (“SFVBJ”) Trusted Advisors is an independent listing produced annually by the SFVBJ. The award is based on data provided by individual advisors and their firms. Only advisors who submitted information are included for consideration, and investment returns are not a component of the rankings. The award is based upon a recipient’s application and not upon any qualitative and quantitative criteria relating specifically to one’s position as an investment advisor. As such, the award is not representative of any one client’s experience. This award does not evaluate the quality of services provided to clients and is not indicative of the investment advisor’s future performance. Neither the RIA firms nor their employees pay a fee to the SFVBJ in exchange for inclusion in the Trusted Advisors awards.

Morton Capital Management has been included on the Barron’s Top 100 Independent Financial Advisors rankings from 2007-2008 and 2010-2016. Morton Capital was not included in the Barron’s rankings in 2009 and 2017. Barron’s ranking is not representative of any one client’s experience and is not indicative of Morton Capital’s future performance, nor does it predict any potential investment outcomes. Morton Capital does not pay a fee to Barron’s in exchange for the rating.

 

Protecting Yourself Online: 7 Cybersecurity Tips

Our world is full of connected devices, everything from our computers and cellphones to our cars. This constant flow of information provides efficiency, convenience, and comfort, but along with these benefits comes increased risk. According to Forbes, cyberattacks currently account for losses of over $400 billion annually and that number is expected to skyrocket to over $2 trillion by 2019. Cyberattacks can target large corporations, as we have seen with Target, Home Depot, and JPMorgan Chase, but they can also target anyone who uses the Internet. Over half of all adults in the US suffered from a cybersecurity incident in 2016.

The amount of money lost to cybercrime has quickly surpassed that which is lost to physical theft, yet many of us do not protect ourselves from cybercrime the way we do with traditional crime. There are a variety of methods malevolent parties may use to get ahold of your personal information, which is why it is important to be vigilant when doing anything that involves your personal or financial information. Most cybercrime involves a combination of hacking and phishing. So, to protect against these attacks, you must ensure that both you and your devices are prepared.

Here are 7 steps you can take to protect yourself from cybercrime:
Read more

Joe Seetoo (Podcast) – The Realities of Selling your Business in a Zero Interest Rate Environment

Joe Seetoo is a Partner and Vice President with Morton Capital Management – a Registered Investment Advisor managing about $1.6 bn in assets under management as of June 30, 2016. As a Certified Financial Planner and Chartered Financial Analyst, Mr. Seetoo has 17 years of experience in developing investment strategies for affluent business owners and high net worth families.
Questions Answered:
1. Why is it important for business owners to do financial planning prior to selling their business?
2. Your firm has a niche in identifying alternative investment strategies – why is that?
3. How can business owners (or any investor) generate sufficient income in Zero interest rate environment after they
sell their businesses?

Disclosures:
Morton Capital Management ($1.6 billion in assets under management (“AUM”) as of June 30, 2016) is registered with the SEC under the Investment Advisers Act of 1940. SEC registration should not be interpreted to mean that Morton Capital or its personnel has been sponsored, recommended or approved, or that Morton Capital’s or its personnel’s abilities or qualifications have been passed upon, by the United States or any agency or office thereof.

The alternative investment opportunities discussed may only be available to eligible clients and involve a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests/shares will be limited, so investors may not have access to capital when it is needed. Additionally, the fees and expenses charged on these investments may be higher than those of other investments.

Barron’s rankings are based on data provided by individual advisors and their firms. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors’ practices. Only firms that submit information are considered.

Past results are no guarantee of future results. Inherent in all investments is the possibility of a loss.

Marketplace Lending

Marketplace-LendingThe fixed income landscape has changed dramatically since the introduction of zero interest rate policies (ZIRP) by global central banks in the aftermath of the credit crisis. In an attempt to avoid a global depression, central banks in the developed countries, led by the US Federal Reserve (“Fed”), reduced short-term borrowing costs close to zero. In the graph below, we illustrate the decline in yields across the fixed income landscape for intermediate government bonds (10-year Treasury–in white), corporate bonds (Moody’s Baa–in red) and the federal funds rate (in green) since 2008.

While these central bank actions may have been justified at the onset of the credit crisis, their effectiveness has come into question over the past several years. After all, interest rates represent the cost of capital, and should ideally be set by markets where creditworthy borrowers or seekers of capital are being met by savers or suppliers of capital. Artificially low interest rates encourage the use of leverage in the economy. Also, at these historically low yields, we believe most publicly traded bonds are mispriced and investors are not being appropriately compensated for the risk they are taking. According to JPMorgan, over 60% of the global government bonds are currently carrying yields below one percent, and almost 30% carry negative yields!

Read More

Jeffrey Sarti Featured in Forbes article on How to Invest Your Money In Q4

September’s stock market sell off either created tremendous opportunities to put money to work at lower prices or alerted active investors to position their portfolios defensively for a deeper correction. To find out how you should invest your money in the fourth quarter,  I assembled a panel of Barron’s-ranked financial advisors to share their best mutual fund or exchange-traded fund picks. This elite group is hailed as the top 1% in their field. Barron’s evaluates financial advisors based on their assets under management, annual revenues, years of experience, client retention, charitable contributions and regulatory records.

5. Tocqueville Gold Fund (TGLDX)

by Jeffrey Sarti

The recent bout of stock market volatility across the globe was just the excuse the Federal Reserve needed to refrain from raising interest rates.  However, we believe the collective “wisdom” to agonize over a meager quarter-point hike is typical of the short-term mindset of the investing public.

Read the full article

Market Overview August 2015

“In the world of investing, being correct about something isn’t at all synonymous with being proved correct right away.” – Howard Marks, Oaktree Capital

The global equity markets have been in full retreat since China devalued its currency (CNY) relative to the U.S. dollar (USD) on August 11th. Since then, more than $5 trillion has been erased from the value of global equities on fears that the slowdown in the Chinese economy is worse than expected. As a result, there is now widespread belief that the U.S. Federal Reserve (Fed) will not be in a position to raise interest rates in its September meeting as had been expected. The table below summarizes the year-to-date performance of the S&P 500 (U.S. large company stocks), MSCI EAFE (developed international stocks) and MSCI EM (emerging market stocks) indices. While the equity market drawdowns have been more dramatic in the emerging markets, the S&P 500 Index has also entered a correction phase – defined as a decline of over 10% – since reaching an all-time high in mid-July.

YTD Financial 08.2015

As is evident from the graph below, the S&P 500 Index (green) has enjoyed a relatively calm climb with little to no volatility since late 2011. The Volatility Index (white) measures the 30-day volatility of the market. It is often referred to as the “Fear Index”. A low level of this index is a sign of too much optimism in the equity markets. The psychology has now changed dramatically, as the current selloff has raised many concerns with respect to currency wars, global growth, valuations of the equity markets, and whether the global central banks – stuck on ZIRP (Zero Interest Rate Policy) for almost 7 years – have any ammunition left to battle a global economic slowdown.

Market-Overview-August-2015-Large-Blog-Image
Source: Bloomberg

While U.S. markets have somewhat stabilized this morning, our concern going forward is that the poor underlying fundamentals could finally derail this resilient bull market. We have been articulating the risks associated with the global monetary policies for some time now and have reduced our equity exposure in recent years in response to escalating valuations. Just in July, we published a position paper detailing our thought process with respect to expensive global markets and the rationale behind including an allocation to gold as a hedge against depreciating paper currencies. We encourage you to read this paper and have included a link to our website below.

https://mortoncapital.com/uncategorized/the-case-for-gold-in-an-uncertain-world/

If you would like to discuss this paper, the financial markets, or your portfolio in more detail, please don’t hesitate to contact us.

Sasan Faiz
Co-Chief Investment Officer