July 2018

Q2 Summary

Vicki Simpson

Perhaps we have adjusted to the return of volatility in Q1, but there has been plenty of action in the global economy to keep our attention, or perhaps, distract us. Interest rates continue to steadily rise, as predicted, and a potential trade war has investors’ confidence in international markets wavering. Media hypersensitivity would lead you to believe every localized economic event around the globe has the potential to have a major impact on your portfolio, but that is not the case. Regional disruptions are often just that - regional - with little to no impact on investments.

Happily, we have seen positive returns in many markets since last quarter. U.S. Equities gained some ground while international and emerging markets are dipping into the red, posting noteworthy losses. This contrasts the first quarter when the two latter markets were the only ones to post gains! A great illustration of why we diversify across the portfolio, to temper these ups and downs.

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Portfolio Deep Work

The Investment Committee recently completed a deep review of our portfolio models and is implementing changes to your portfolio driven by this work.  

While we continually monitor portfolios and make changes as needed; we limit the frequency of major changes to reduce tax and transaction costs and to avoid poor decision making based on short-term volatility in the markets.

Our review focused on the following:

  1. Philosophy: Have we shifted our view on any aspects of investing? 

  2. Benefits: Are we adding value (or expecting to) by investing in certain sectors? 

  3. Costs: Can we reduce costs and thus increase our client’s net returns?

  4. Variations: Do we offer enough variety in investment objective options?


A popular topic of debate is the use of Indexing vs. Active management. The main objective of an active manager is to outperform (over the long term) the index of the market in which they invest. If an active manager does not outperform, clients pay an opportunity cost and higher fund fees. Twenty years ago, we utilized nearly all active managers. Over time we gradually incorporated index funds while continuing to benefit from active managers in portions of the portfolio. We are continuing this trend of using both types of funds.

One of our core beliefs is the long-term out-performance of value biased funds. Unfortunately, recent history has not proven this to be true, particularly in U.S. Large Cap stocks. We have waited patiently for the pendulum to swing back but it has not. Have the markets fundamentally changed? We decided to retain, but reduce our bias toward value.

Benefits: What do we expect?

We believe Real Assets (Energy and Real Estate) face significant headwinds in the form of increased energy supplies and rising interest rates. As we increase our allocation to index funds, we also increase exposure to Real Estate by way of the REITs held in the index. Thus, we have decided to reduce our real asset allocation.

Cost Control

Four types of changes are being made to further reduce portfolio expenses. These include reducing the number of funds we use while retaining broad diversification in portfolios; changing some managers and/or share classes used to cut annual manager costs; adjusting asset location to reduce tax costs.


As we add younger clients with longer investment timelines and greater tolerance for risk, we have seen a need for more aggressive investment allocations. We added two new investment models to address this need. The charts below illustrate the compositions and the spectrum of models now available. Red represents equities and blue represents fixed income.

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We have high conviction in the choices we have made and trading has begun. We will share updates in subsequent newsletters and you will likely hear more about it in your upcoming meetings as well! We hope you all have a great third quarter... uh, summer!

The Investment Committee

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