Mark Andraos


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Domestic vs. Developed International Stocks - A Tale of Two Market Cycles

Domestic stocks have been a dominantly outperforming asset class over the past three years (see Scott Drown’s January blog titled “Di-worse-ification”). The results displayed on this graph prompted us to dig deeper into the performance of our domestic markets’ international counterpart, the MSCI EAFE Index. The MSCI EAFE Index is designed to represent the performance of large cap securities across 21 developed markets and is widely regarded as the “S&P 500 equivalent” to the developed international markets.

When looking back over the past 45 years, we were able to parse out the relative out-performance of the S&P 500 and the MSCI EAFE indices and have found that over several year periods, one index seems to substantially outperform the other but reverts back at a later period*: 

DATE RANGE

OUTPERFORMER: S&P 500 or EAFE?

% OUTPERFORMED

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The Emerging Markets Dry Spell Continues - but is there a light at the end of the tunnel?

August was a particularly tough month across nearly all asset classes, as stocks were down anywhere from 6-10% for the month depending on which market you’re looking at. Past experience shows us that volatility and market draw-downs are relatively common, particularly if you parse performance on a month-to-month basis. The true test for long-term investors comes when there are bad multi-year periods. One specific asset class fits the bill on this one: the emerging markets.

Since coming off their highs in late 2007, the emerging markets have a total return of (-24.3%) through the end of August – that’s a (-3.5%) per year return for nearly the past 8 years. In the same period, the S&P 500 is up around 5.5% per year since the last cycle peaked. A few obvious questions come to mind when looking at this data:

 

1. Why would an investor allocate any money to emerging markets when they have been lagging for so long?

2. Why would a diversified investor continue to hold emerging markets during this type of environment?

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Aligning Asset Allocation with Goals and Objectives

We all see the daily headlines: “Ten Stocks Poised for a Breakthrough this Summer” or “Here’s how to Profit by Playing these Oil Companies” or something to that affect. We’ve constantly been inundated by financial headlines, being forced to separate sound and suitable advice from the noise. From all this, the big question I hear from a lot of investors is “Where should I invest my money?” While there’s no “cookie-cutter” answer that fits the mold of each investor, there is one common solution: having a disciplined asset allocation strategy in place establishes a guideline and program for investors to follow.

So what should my asset allocation be? The answer to this question is quite simple – it should be the one that you are comfortable with and the one that you understand will help you reach your goals and objectives. Here’s an example: for a young professional who just became eligible to enroll in his company retirement plan, it may make sense to have a more aggressive, growth-oriented asset allocation. Conversely, retirees who are relying on their 401(k) and IRA assets to supplement their post-retirement income may want to consider a more moderate or balanced allocation.

The most significant determinant to asset allocation is ALIGNING your time horizon because time is an investor’s best friend. The longer your time horizon, the higher the risk/reward opportunities. It’s important to remember that your asset allocation must be flexible as you approach your investment goal.

Mark is a Portfolio Analyst at Heller Wealth Advisors. If you would like to learn more about how to align your asset allocation with your goals and objectives, please contact Mark at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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Concentrated Stock Positions: Ways to Reduce Single Stock Risk

A single stock can make you rich, but multiple stocks can keep you rich: Strategies to reduce your concentrated positions

 

As the equity markets continue to climb higher, individuals who hold concentrated stock positions may find themselves feeling a bit uneasy, particularly with one position becoming a much more meaningful part of their overall wealth and future financial security. Those who have been fortunate enough to achieve superior returns on a particular stock may feel hesitant to divest a portion of their concentrated position due to tax issues, loss of potential upside opportunity or simply due to sentimental reasons. However, there are certain strategies available to investors to help manage single stock risk. Here are four risk-reduction strategies to explore:

 

 

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Oil, Energy, and MLPs – is the worst behind us?

The price of crude oil has rebounded strongly since the end of January after closing down nearly 46% in 2014. Is this the beginning of a new upward trend? Or perhaps it’s just a short-term correction before a further decline? While it has proved difficult to predict short-term and long-term price targets on the oil and energy sector as a whole, we believe that 2014’s energy selloff has provided us with an attractive opportunity in the space. Energy master limited partnerships, or MLPs, are publicly traded corporations that combine the tax benefits of a limited partnership with the liquidity of publicly traded securities. We believe that the energy selloff has provided an attractive entry point into this space.

 

WHY DID OIL PRICES DROP SO LOW? Although there were many factors that affected the price of oil in 2014, there were two key themes that played out – reduced US dependency on foreign oil and OPEC’s decision not to curb oil production. The United States has now become the world’s largest oil producer, which means we now import far less oil than we have in the past. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) failed to reach an agreement this past November to curb global oil production, which continued to send crude prices tumbling.

 

HOW DOES THIS AFFECT MLPs? Energy prices can have a significant effect on upstream MLPs, which are typically engaged in the exploration and production of oil and natural gas. The area that has piqued our interest, however, is in the midstream MLP space which services the energy sector by providing pipelines, storage, refineries, and processing plants to the exploration and production companies.

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