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Strategic Insights

Volume 7, Edition 33 | September 17 - September 21, 2018

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Don’t Curse Your Portfolio

Doug_Walters Doug Walters | Articles

Read Time: 5:00 min


Some food for thought the next time you curse that worst performing security in your well-diversified portfolio…

Market Review

Contributed by Doug Walters

U.S. stocks are at an all-time high, while International has lagged. However, there is a silver lining surrounding International woes. Less correlation amongst global stocks could be a long-term advantage for appropriately diversified investors.

There is Always a Worst Performer

The S&P 500 continued its winning ways this week, reaching new highs. The index has now produced a total return of over 11% year-to-date. However, as we discussed last week (Why Own International Stocks?), those holding a well-diversified portfolio will notice a drag from the international portion of their portfolio, which has not kept pace with the U.S. Intelligent diversification is a well-researched, proven, long-term benefit to risk-adjusted returns (i.e., you definitely want it). However, diversification can be a regular source of frustration for investors. Why? There is always a “worst” performing asset class, prompting the inevitable exclamation, “Ugh, I wish I didn’t own that.”

Diversification benefits are difficult to observe in the short term but indisputable in the long-run. We touched on this in our March Perspectives (Volatility: Friend or Foe?), where we showed how 2+2 could be greater than 4 in portfolio management. This phenomenon is even more pronounced when assets (like U.S. and International stocks) do NOT move together in lockstep. The fact that International stocks are down this year, while U.S. stocks are up is a good thing! When we rebalance, profits from potentially more expensive U.S. assets can be used to purchase cheaper International assets. Over time, this can be a powerful way to achieve higher returns at lower risk.

With all that said… International stocks rebounded this week (see our Asset Allocation discussion).

Spotlight: Clinton is Hockeyville™

Back in April, we spotlighted our local town of Clinton, NY winning the title of 2018 Kraft Hockeyville™ (Not Playing Defense). This weekend is the official celebration with Kraft and the NHL in town. In addition to the Buffalo Sabres and Columbus Blue Jackets, who will play a preseason game on Tuesday, those in Clinton might catch sight of the Stanley Cup, the Oscar Mayer Wienermobile, the Planters Nutmobile, the Kool-Aid Man and much more. If you are on the Clinton green Saturday, come to say “Hi.” You may find me manning a charity booth or perhaps even on stage at the gazebo, knocking out some acoustic tunes (Full Kraft Hockeyville™ schedule).

Clinton Ice Arena in Clinton, New York has been selected as one of four communities to face-off to become Kraft #HockeyvilleUSA! To check out their full story, head to and get ready to vote for your favorite community on April 13th – April 14th. Voting opens April 13th at 12:00am ET.NHL on NBC Sports NHL NHLPA

Posted by Kraft Hockeyville USA on Sunday, April 1, 2018


Strategy Update

Contributed by Max Berkovich ,


Taking a Hike

U.S. equities marched higher for another week, with many indices reaching new highs. International equity markets though had an even better week. The rally in the Developed and Emerging equity markets outpaced the hot week in the U.S. Bonds were under-pressure as investors prepare for the widely expected rate hike from the Fed next week. Speaking of rate hikes…

  • The rise in U.S. interest rates driven by our monetary policy has helped the U.S. Dollar to appreciate against a basket of major currencies. According to Bloomberg’s World Interest Rate Probability Index, there is a 99% chance that the U.S. Fed will increase interest rates on Wednesday afternoon. Markets will have priced-in this information, but we will closely watch for any impact on the U.S. Dollar and International markets.
  • In our Insights asset Allocation Section from issues “The Great Fair Trade” and “Resistance is Not Futile”, we discussed how a strong U.S. dollar creates a challenging environment for Emerging Markets (EM) to service their U.S. Dollar denominated debt.
  • The spread between 10-year U.S. Treasury and 2-year is about 0.26%, which is roughly about the size of one rate hike. When the Fed moves the overnight lending rates, they generally influence short-term rates (like the 2-year), but long-term rates, such as the 10-year Treasuries, are driven more by market expectations. If long-term rates don’t keep up with the pace of short-term rates this week, the yield curve will flatten leaving little compensation for long-term lending.


No Longer Under the Sea

The Consumer Staples sector was the laggard this week. The Materials sector was the leader, with Industrials just a few steps behind. In other strategy news…

  • Oracle Corp. (ORCL) reported an uneventful quarter. A slight beat on earnings and a slight miss on revenue. The company did add another $12 Billion to its stock buyback authorization.
  • Recent strategy addition TE Connectivity Ltd. (TEL) sold its Subsea Communications unit to Cerberus Capital for $325 million. TE will use the proceeds for share buybacks. The Subsea unit was not part of the company’s core business of connectivity and sensor product manufacturing. TE is the successor business of Tyco Corp’s electronics unit.


Strengthening the Bridge

The Financial sector edged out Industrials thanks to a great week for banks. Utilities and REITs were the clear laggards thanks to rising bond yields. Speaking of Utilities…

  • Enbridge Inc. (ENB), the Canadian utility and energy infrastructure giant, took a major step forward in simplifying its corporate structure. The company went on a shopping spree, spending $8.2 Billion to acquire all public equity of its several partnerships that hold pipeline assets. These steps are in addition to a similar move in August to do the same with the pipeline assets of Spectra Energy which it acquired in 2016. Once these transactions are complete, the company will be a lot more transparent. By the way, the stock yields almost 6%.

The Week Ahead

Contributed by

A FEW Things to Look Forward to..

Federal Open Market Committee (FOMC) is widely expected to deliver a rate increase from 2.00% to 2.25% on Wednesday afternoon.

  • Investors will focus on any guidance for the pace of hikes in 2019 and beyond.
  • The FOMC will release their forecasts, and Chairman Powell will hold a press conference.

Economic data next week includes the final 2nd quarter Gross Domestic Product (GDP) release, Personal Consumption Expenditures (PCE), Pending Home Sales, Case-Schiller Home Price Index, Durable Goods Orders, the University of Michigan Consumer Sentiment Index, Chicago Purchasing Managers’ Index (PMI), and the European Central Bank’s (ECB) Governing Council’s non-monetary meeting in Frankfurt, Germany.

  • The President of the ECB, Mario Draghi, will make remarks regarding the economic outlook of the European Union at the end of the meeting.

World leaders are gathering in New York City for the 73rd annual United Nations General Assembly.

  • President Trump is scheduled to speak on Tuesday. Early reports indicate the Iran deal, foreign aid, chemical weapons, and North Korea will be mentioned in his address.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.