- Market Notes – Markets were somewhat of a roller coaster in the third quarter as threats and reconciliation around trade impacted investor sentiment. In addition, investors remained highly sensitive to announcements from the U.S. Federal Reserve around interest rates and the pace of corporate earnings growth. The uncertainty was balanced by still low unemployment levels, which have fueled consumer spending growth.
- Equity & Fixed Income Comments – Our portfolio positioning in the equity and fixed income components of client portfolios continues to reflect our relatively cautious outlook for U.S. equities and U.S. corporate bonds. On the equity side, we remain heavily invested in high quality (companies with strong balance sheets) U.S. large-cap companies, with an added emphasis on the real estate sector and companies that have consistently grown their dividends. During the quarter, we also became slightly less aggressive in foreign markets as we shifted exposure away from Asia (notably China). Within fixed income, our emphasis remains on the high quality, non-cyclical parts of the credit markets. In municipal markets we favor investments in the private and direct origination markets.
- Research Focus – There are generally four stages in a business cycle: early-cycle, mid-cycle, late-cycle and recession. We believe it is important to have a view on where the U.S. (and other countries) reside in the business cycle because different asset classes and sub-asset classes perform better (worse) during the various stages. If we are confident in our estimation of the business cycle phase, we may be able to emphasize or de-emphasize certain areas of the market in client portfolios.
- Client Focus – We are highly practical about the execution necessary to include certain asset classes in client portfolios and skeptical of the value in the complexity that many asset classes bring. We are not averse to owning any asset class in client portfolios. They just need to meet our cost, liquidity and risk-adjusted return hurdles for consideration.