Happy Birthday Bull Market
On March 9th, the stock market hit a milestone, becoming the second longest running bull market in history. In quantifying this milestone, if an investor invested in the S&P 500 at the low, March 9th 2009, as of March 9th 2017, the investor would have seen a return of 250.08%. However, it is important to note, that timing of the stock market with a long-term strategy is difficult. If this same investor, invested October 9th, 2007 and liquidated their holdings March 9th, 2009, the same investor would have experienced the second worst bear market in history, losing 56.4%. Over the last 8 years, many investors have followed the crowd into passive strategies, oftentimes quoting media headlines of “Passive Strategies Outperforming Active Managers”. However, these statistics are misleading, as most investors who invest in an active strategy, invest in a strategy with little active management. Those investors who invest in a portfolio with a higher Active Share Ratio, have been found to outperform the underlying benchmark by an average of 1.26% a year, after fees and expenses.
At Samra Wealth Management, we continue to recommend US equities. As year-to-date performance of the S&P 500 is up 5.53%. Our prior month’s consensus has called for increased allocations towards Technology (Red), Healthcare (Orange), Industrials (Purple) and Finance (Yellow). Allocating an additional 10% to each of these sectors would have returned 0.402% over the S&P 500 in the first quarter, further strengthening the case of active management.
For speculators waiting for the market to decline, we believe this scenario is highly unlikely, as U.S. equities are fairly priced, with innovation continuing to create value opportunities. According to Savita Subramanian, Chief Equity and Quant Strategist at Bank of America Merrill Lynch, there is an increasing likelihood that we are entering the typical later stages of a bull market, during which the fundamentals typically take a back seat to sentiment and technicals. We further advise our clients to look past domestic markets, and allocate a portion of their portfolios towards Asia, and the Nordic region.
With the U.S. Dollar expected to grow in value compared to other major currencies, we recommend investments in foreign markets to be selected cautiously. With little volatility in terms of currency in the Nordic Region, investments in this area should be made on a non-currency hedged basis. For those who are open to taking on more risk, we believe there may be opportunity to invest in Russia. With the Trump administration showing a friendly stance towards Russia, both the MICEX and the Ruble have shown gains since the Presidential election. However, investors looking to allocate a portion of their portfolios towards Russia should consider, some key points, regardless of the Russian Economy being on the path to recovery: (1) There has been heightened political risk, as thousands of Russians took to the streets to protest the current administration, on the grounds of anticorruption. (2) Low oil prices could pose a detrimental effect on the Russian economy. (3) Should Russia devalue the Ruble, any gains made in the Russian markets would be lost, without a currency hedge.
With regards to the remainder of developed Europe, their is heightened political uncertainty, as Theresa May has triggered article 50, positioning the U.K. to leave the European Union. However, we expect the French and German elections to follow the path of the Netherlands, and learn from the surprise U.K. referendum vote, as well as the outcome of the U.S. Presidential Election. Although the United Kingdom will attempt to negotiate the best terms for an exit of the EU, we remain caution, and recommend European investments should be made on an Ex-U.K. basis.
We favor select Asian markets, including Japan, Hong-Kong, Singapore, Taiwan, Thailand and small and mid-cap in the Chinese economy. With Japanese inflation expected to grow, Japan is likely to experience an increase in nominal wages, making equities attractive. We expect to see increased pressure on wages, as Bloomberg recently reported “Tokyo has more than two job openings for every applicant”. With the shrinking pool of graduates favoring small companies over large, forcing large cap Japanese companies to compete for the limited talent pool, monetarily. Furthermore, investments in Asia should be made on a currency hedged basis, with the aim of protecting investors as the dollar is expected to further appreciate in value, given the FOMC has raised interest rates, and economist believe we will see further rate increases in 2017.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor
Samra Wealth Management, A Member of Advisory Services Network, LLC