With changes in weather, we change our clothes. The more wide-ranging and unpredictable the patterns, the bigger our closets. So it goes with our investments. Markets never fail to press for change of fashion and function, as shifts from balmy rally to stormy correction can come swiftly. And our natural response to an abruptly changing environment, depending on the direction, is to duck and run for cover or to drop the coat and umbrella for shorts and sunglasses. But, what if we build our investments with an all-weather attitude in mind? That basic mindset defines our investment approach.

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The U.S. election seemed to dominate capital market movement during the fourth quarter of 2016, as investors first withdrew from risk markets leading up to the decision then embraced them after Donald Trump succeeded in defeating Hillary Clinton to become America’s 45th President. While strength in the U.S. dollar masked otherwise robust global equity market returns in the aggregate, our tilts to relatively inexpensive (known as, “value”) and to small-capitalization stocks boosted portfolio returns, versus the broader markets. While equity markets were positively affected by optimism regarding a Trump administration, fixed income markets were adversely affected by concerns regarding potential policy shifts. Investors began to anticipate higher macroeconomic growth mixed with higher inflation and higher domestic government debt, as well as a less accommodative monetary policy stance from the Federal Reserve. Longer-maturity bonds suffered the most, while corporate exposures fared better on account of the potential for faster growth to boost business activity and profit.

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Capital markets may always reflect the aggregate expectations of investors, but those individual expectations can and will change. Sometimes those changes can come quickly with the resulting market impacts at the same time dramatic and confounding. The final months of 2016 brought with them ample reminder of these truths. Market trends after the November Presidential election left many wondering whether their portfolios should adjust to some new realty, particularly on the fixed income side of the ledger. As we wrote in last month’s commentary, we do not presently believe any marked change in expectation or allocation is warranted. Furthermore, for those still worried about the future for their bond investments, we take the opportunity this month to provide some additional perspective on the important role fixed income can play in a portfolio.

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With all matters investment related, we seek to avoid surprise when the unexpected happens. This objective promotes a healthy skepticism of the consensus view and supports a calm demeanor in the presence of market instability. Even more, measured thinking encourages a heavy emphasis on risk measurement and control, a central tenet of our approach to […]

Our approach to investment management seeks pragmatism in concept and efficiency in practice. It is grounded upon more than a century of market history and informed by our collective decades of investment and advisory experience. Executed with cost effectiveness and practicality in mind, our methodology acknowledges the give and take of return and risk inherent […]

Capital markets entered the third quarter of 2016 recovering from the turmoil impelled by the United Kingdom’s surprise vote to depart from the European Union. Nonetheless, equity markets generally saw reasonably strong gains in the third quarter, with fixed income markets generally tracing a path to green as well. Helped that fears of “Brexit” contagion […]