Our portfolios returns were relatively flat for the quarter. We continued again this quarter – as we did last quarter – to track the performance of the S&P 500 Index, which is extremely unusual for a globally balanced, highly diversified portfolio strategy. Our equity selections did the heavy lifting since bonds produced negative returns for the quarter, and we would have expected to under perform.
The second quarter for stocks was also relatively flat. Large-cap domestic stocks were up fractionally or around 0.28% to bring year-to-date (YTD) returns of just over 1%. Smaller company shares have fared slightly better at 0.35%, bringing its YTD return to 4.7%. International equities were the winner this quarter with a return of 0.60% and YTD returns of just over 6%.
Interest rates increased during the quarter which put pressure on fixed income securities. Taxable bonds lost just under 2% for the quarter which brought YTD returns to -0.33%. Tax-free muni bonds lost just under 1% for the quarter and are flat on the year.
Money Markets continue to pay close to zero percent, and inflation rates are trending at around 0% in the U.S. through the first half of 2015.
Major Market Indexes 1
Outlook and Strategy
In this low return environment we are seeking out lower-cost investment opportunities such as Exchange Traded Funds (ETFs), and other lower-cost actively managed investment strategies that look for undervalued stocks. We have a focus on larger companies, dividend growers, and value stocks. We have below average exposure to securities overseas as we believe currency headwinds will limit returns over the next 3-5 years driven by the continued strength in the U.S. Dollar. The potential rise in interest rates by the Federal Reserve, problems with Greece and its impact on the European Union finances, and the bubble bursting in China are fueling the continued strength in the U.S. Dollar.
While there is a good chance interest rates will continue to increase, we believe it will be at a slow pace – thus limiting potential losses in the fixed income securities market. Fixed income still provides great diversification to a portfolio. Our fund managers can ride the wave of rising rates up and invest in higher yielding bonds as older bonds mature.
The impact of world events from China to Greece is already causing increased market volatility. Depending on how these events are handled with fiscal and monetary policy, it could eventually lead to slower growth globally which in turn could start a global recession. Recessions are a normal part of market cycles, and although no one knows for sure when one will occur, we can be sure that one will eventually occur. Recessions in the U.S. last an average of 6 to 18 months, and the markets recover quickly when they end. We will be monitoring this closely and adjust our portfolios to take advantage of the opportunities created along the way.
If you would like to speak with a Senior Wealth Advisor at R.W. Rogé & Company, Inc., please contact us at 631.218.0077 or at firstname.lastname@example.org. It would be our privilege to serve you and your family’s needs.
1 Steele Mutual Fund Expert