all-client investment committee meeting€¦ · all-client investment committee meeting february 8,...

All-Client Investment Committee Meeting

February 8, 2018

BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COMBOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM

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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM

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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL

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Agenda

I. Welcome & Introductions: Rick Lawrence

II. Economic Fundamentals and CFM Strategy: Brad Bickham

III. Bonds and Alternatives: Josh Miller

IV. Equities - 2018 Indicators/Forecast: Dave Eads

V. Closing Remarks: Rick Lawrence, Brad Bickham

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CFM Update & Introductions

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CFM Staff

• Employees – 26• Investments, Operations, Service, Advisory and Financial Planning

• Interns - 3

• Rick Lawrence – President and CEO• Brad Bickham - Managing Partner and CIO• Meagan D’Angelo – Principal | Sr. Advisor• Josh Miller - Principal | Sr. Advisor• David Eads - Principal | Sr. Advisor• Jordan Kunz – Financial Advisor• Barbara Lommen – Associate Financial Advisor• Viki Falus – Senior Financial Planner• Greg Francis – Trader and Analyst• Bekah Pickerell – Client Service Manager• Shannon Knight – Client Service Manager• Kait Seiffert – Client Service Manager• Joe Keupper – Client Service Manager• Floyd Pierce – Client Service Manager• Anne Kimmell - Receptionist

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Economic & Market Fundamentals

Brad Bickham

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2017 & 10 Year Index Returns

2017 10 Yr

• Bloomberg Barclays

US Aggregate Bond 3.5% 4.0%

• S&P 500 21.8% 8.5%

• MSCI ACWI 23.9% 4.9%

• MSCI EM 37.2% 1.7%

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Will economic growth continue?

We expect the economy to continue to grow at around 2% in 2018.

Potential for upside to estimate based on tax changes or stimulus; however, both the amount and timing of any changes are uncertain and are not in our forecast.


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GDP Forecasts

Q4 2017 GDP forecast around 3.2%, NY Fed 3.9% Q3 2017 Actual: 3.3 percent annual rate


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Unemployment has steadily improved since peaking in 2009.

We are reaching peak employment, except there is some slack in the U6 and participation rate.

Full employment will lead to rising wages, an important ingredient to a rising economy. It could ultimately lead to inflation and corporate margin pressures.

Recession is very unlikely with employment so strong

U6 Unemployment Rate Labor Force Participation Rate


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2018 Outlook - Positive Global Growth

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European recovery is accelerating


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Economic confidence is rising around the world


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Global investment is rising –especially in the emerging economies


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_Source: Thomson Reuters Datastream / Fathom Consulting

Net balance

2006 2008 2010 2012 2014 2016 2018-60

-50

-40

-30

-20

-10

0

10

20

Germany FranceSpain ItalyPortugal Euro area

Negative deposit rate+ TLTRO I

QE 1 QE 2 +TLTRO II


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We continue to expect inflation to remain below or near average into 2018 _________________

The Fed can be slow in raising rates as long as inflation remains low

Inflation is picking up, but will remain low


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Interest rates should rise modestly in 2018

Rates have moved higher recently, but remain low by historical standards. ___________

The Fed has raised the target fed funds rate to 1.25 – 1.50%. They indicated rates may be raised 2-3 times in 2018.


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Corporate Profits


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Market Valuation

We are keeping a close watch on

valuations, which are above historical

averages.


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International market earnings and valuations

International EPS growth has lagged

U.S. EPS growth since the financial

crisis.

We see structural issues abroad that

are limiting international growth and corresponding

valuations.

If these issues are addressed,

international markets may outperform.


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Conclusion

• Economy and earnings are positive, and accelerating• Foreign economies are picking up steam, and if their earnings

follow then international investments should outperform• Interest rates have risen modestly so far, but a “too hot” economy

would force the Fed to raise rates faster• Valuations in the U.S. aren’t at extreme levels, but they are well

above average• Investors are too optimistic right now and there hasn’t been a

meaningful correction since 1Q16 • As long as the economic fundamentals hold, and inflation doesn’t

accelerate then a correction is only that and investors should maintain their current allocation strategy.


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Blending Technicals & Fundamentals


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Fixed Income & Alternatives

Josh Miller

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Size of the Bond Market


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2017 Fixed Income Returns

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2017 Bond Alternative Returns

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2017 Portfolios• Client portfolios beat the Barclays Aggregate Bond

benchmark• Usage of both core fixed income and alternative asset

securities led to outperformance• Core Fixed Income – US Treasuries, Mortgage Back

Securities, and Corporate Bonds • Alternatives – High Yield, Emerging Market, and

International• Outperformance with corporate bonds and the

following alternative asset classes:• High Yield Bonds• Emerging Market Bonds• International Treasuries• Low Volatility Equity Funds

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Why Own Bonds?

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Why Own Bonds?

• Capital Preservation

• Income

• Growth

• Diversification – low correlation to equities

• Restful sleep

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Why Own Bonds?

• Decline in portfolio Breakeven Return

Decline Breakeven Return

• -1% +1.01%• -5% +5.30%• -10% +11.00%• -20% +25.00%• -70% +233.00%

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50% 100%


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Bond vs. Stock Volatility – Capital Preservation

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Bond vs. Stock Volatility - Correlation

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Blend of Bonds and Stocks -Correlation

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2018 Outlook – recession unlikely, but will happen eventually

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2018 Outlook – Modestly higher rates

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2018 Outlook - Area of Concern

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2018 Outlook Higher Volatility

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Bond Alternatives Can Increase Returns vs. Bonds Only

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10 Year Outlook 2% – 5%

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2018 Equities Outlook

Dave Eads

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Index Name Index Covering Total Return 1 Yr

Risk (Standard Deviation) 3 Yr

BBgBarc US Agg Bond TR USD US Bond Market 3.5% 2.82BBgBarc Global Aggregate TR USD Global Bond Market 7.4% 4.89MSCI ACWI IMI NR USD Global Stock Market 23.9% 10.48MSCI EAFE NR USD International Stock Market 25.0% 12.00MSCI EM NR USD Emerging Market Stocks 37.3% 15.57S&P 500 TR USD US Stock Market 21.8% 10.07

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2017 Index Performance


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Blending Technicals & Fundamentals


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Corporate Profits


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Market Valuation

We are keeping a close watch on

valuations, which are above historical

averages.


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Valuations Remain Reasonable(on a global basis)


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International Mean Reversion?

Potential International Outperformance


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Currencies


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Currencies


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Market Cycle – Where Are We Now?

Source: optionalpha.com


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Closing Remarks

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