Thoughts of an Investment Advisor - 2nd Quarter 2015 - Part 1

My role in the financial life of my clients is to find investment building blocks and put those blocks together in a portfolio that meets each client’s needs.  There are many types of building blocks – stock funds (growth, value, international, small-cap, large-cap), bond funds (short-term, long-term, high quality, junk bonds, government bonds, municipal bonds), balanced funds (stocks and bonds), sector funds (health care, real estate, energy), alternative investments (long-short funds, hedge funds) and many more.  In order to find good investments and to monitor them, I read a lot of articles and financial publications, monitor performance results, consume many hours of financial media broadcasts (CNBC and Bloomberg), and meet regularly with representatives of investment and mutual fund companies.  Over the last few weeks I have met with reps from T Rowe Price, Vanguard, Blackrock and Goldman Sachs. 

When you meet with a representative, they will discuss fund performance and their firm’s view on the markets.  You have to ask some probing questions and read between the lines sometimes to get relevant information out of them.  One exception to the normal rep meeting is a meeting with Vanguard.  They pride themselves on not having a view of the market or talking much about fund performance.  The big news from the Vanguard rep was a new municipal bond ETF product they are developing.  Exchange Traded Funds (ETF’s) are like mutual funds in that they hold a group of stocks or bonds, but they trade like a stock.  Mutual funds can only be bought once a day at the close of trading.  If the market drops 10% in a day, you can only sell a mutual fund after the loss is locked in.  You can buy or sell an ETF anytime during the day.  Their new ETF will combine all kinds of municipal bonds with varying maturities and quality into one investment vehicle. 

The other fund reps all had some common themes about their firms’ view of the stock and bond market.  All felt that interest rates would rise and bond prices would be hurt over the next 18 months.  No one thought there would be a return to normal bond yields (4% to 6%) for many years.  They also did not see much upside to the stock market for the next twelve months.  Goldman Sachs in particular felt that for the next five years, equity returns would be in the 5% to 7% range annually.  Goldman and Blackrock saw more opportunity in international equities than US equities.