A Dove and a Holiday Rally

Nothing like coming in hot to 2015.  Mid-December Federal Open Market Committee comments about monetary policy included the word “patient,” which caused a stir akin to that created by Santa on the rooftop.  The Leading Economic Indicators for the U.S. came in at +0.6% for November, further solidifying their upward march.  Investors of all faiths found peace with this, and the equity markets rocketed upwards like a sleigh with launchers.

Entering the last week of trading for the year, the major areas of the markets rang in joyous annual total return figures.  Major indices and exchanges delivered holiday cheer across the board with solid double-digit returns.  The Dow Jones Industrial Average gave investors +11.47%, the Standard & Poors 500 +15.3%, and NASDAQ +15.09%.  Sector winners were topped by Utilities and Healthcare, with both posting total return figures over 30% for the year.  Other sectors followed suit.  The only naughty sector for equity investors was Energy, which lost as much as 10-20% depending on capitalization.  The year also saw differentiation by style, as growth orientation outpaced value for 2014 by about 3%.

Now off to celebrate a Happy New Year and a fabulous 2015!

Source: Morningstar

© 2014-2015 Pawleys Capital Management, LLC. All rights reserved.

Dude, Boost your Portfolio Performance!

If everyone is riding the same wave, why do some surfers go faster than others?  Differences in equipment, physical fitness, and skill can give the boost surfers need to gain speed.  Small advantages can add up quickly.  Similarly, portfolio managers in the equity markets all face a level-playing field.  In the U.S. alone, there are almost 7,000 publically traded companies.  Intuitively, equity managers who can consistently identify a handful of above average stocks and go long while shorting a few mediocre stocks should be able to consistently beat the market.  So why do so many funds underperform their benchmarks?  We feel it is important to keep the big picture in mind, or you might miss catching the wave altogether.  Here are three high-level areas for potential performance advantages:

  1. Use of structure or systemized processes – a short-term hot streak can end quickly without processes to identify the right securities and properly timing entry and exit points for those positions.
  2. Evaluate quality accurately – managers can be blindsided if they are not consistently evaluating portfolio holdings from a purely objective eye; long positions can go south or short positions can jump unexpectedly.
  3. Keep Fees Low – excessive trading commissions and wide bid/ask pricing spreads can chisel away at portfolios and quickly cause good managers to underperform.

Portfolio managers all face the same economic and market conditions.  Pawleys Capital Management focuses on building portfolios that will perform well in a myriad of environments.  Our processes are systematic, we work hard to properly assess the quality of holdings, and we keep costs low.  Surf’s up!

© 2014-2015 Pawleys Capital Management, LLC. All rights reserved.

Thoughts from Pawleys on Investment Strategy

Sometimes the noise of the markets can be a distraction from basic fundamentals. The best strategy to cushion both stocks and bonds (including mutual funds) is to focus on quality. For fixed income (and we do a fair amount of tax-free municipal bonds, especially within South Carolina), the highest rated bonds will be less volatile when interest rates rise. When the economy slows, corporations with consistent earnings and little debt tend to be less volatile. Look for consistency and quality, and avoid swinging for the fences with low-quality momentum stocks and poorly rated bonds, because you will likely get burned. Having a plan can help you stay on track, especially when news and political events start to cause anxiety in an otherwise healthy market. Random, unplanned changes rarely pay off. Remove low quality investments and trim over-weighted areas in your portfolio. Many investors lost 50, 60, even 70% during 2008 because they forgot to rebalance and held lower quality investments. A well balanced, 50/50 portfolio of high quality investments would have dropped approximately 15% that year. Adding structure sounds like an obvious guideline, but because most investments are sold on a commission-basis, many people end up with a random collection of investments that don’t necessarily fit together. Like any sports team, a solid portfolio is constructed of individual parts that work well together as a whole. Lastly, news sources can generate lots of hype and create worry…but investing should be fun. Having our local schools and parks operate effectively would not be possible without the debt issued by municipalities, which enables investors to enjoy a stream of tax-free income. The creation of capital through the equity markets is what allows innovative companies to grow and expand, while investors reap the benefit of growing capital and even dividend income along the way. Enjoy the process and have fun!

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.