The Nvest Wealth Strategies Analysis and Commentary

Analysis for June 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Commentary for June 2010 :: Bumpy Journey to New Destination

Looking back, very little actually resolved in May. There were many announcements, but little progress was made. Financial support was pledged to Greece, but the country remains insolvent; the BP oil rig continues to spew oil (some encouraging news on this over the weekend), while the price of oil floats around $70/barrel; both houses of Congress passed their own versions of financial reform legislation, but reconciliation may result in different regulations and protections. Instead of getting resolution, we are getting more confusion. With confusion comes volatility and causes investors emotion about their future prospects.

Almost across the boardfrom bonds to stocks, international investments to domestic-the month of May was frustrating. The fits and starts reflect great expectations being dashed, but worst-case scenarios are not being realized either. The key question of the day, and for upcoming evaluation, is will the bad contaminate the good, or will the good rescue the bad? Please read on for more thought on this important question.

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Analysis for May 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Analysis for April 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Analysis for March 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Analysis for February 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Analysis for January 2010 :: Fund Performance

Stock and Bond Fund Performance by style.

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Analysis for December 2009 :: Fund Performance - 2009 Archive

Archive of Stock and Bond Fund Performance by style.

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Analysis for December 2008 :: Fund Performance - 2008 Archive

Archive of Stock and Bond Fund Performance by style.

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Analysis for December 2007 :: Fund Performance - 2007 Archive

Stock and Bond Fund Performance by style

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Analysis for December 2006 :: Fund Performance - 2006 Archive

Archive of Equity and Fixed Income mutual fund performance by month.

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Commentary for May 2010 :: Super Saver

It seems appropriate that a horse named Super Saver should win the Kentucky Derby, particularly in light of recent economic events and their impact on Americans. Recent economic statistics reflect some resurgence by consumers toward spending perhaps the result of two years of limited spending reflecting pent-up demand. But, we expect the process of reducing debt/saving will continue for some time.

Meanwhile, April continued the sequence of rewarding investors with positive returns in both stocks and bonds. And, investors continue to move money from virtually zero-interest money market funds into riskier assets. It remains fascinating however, that the amount of money being channeled to bond funds outpaces stock funds at a rate of 17 to 1. Investors are taking on risk: buying historically low-yield bonds despite consensus expectation for interest rates to rise in the not-to-distant future. Recall, when interest rates rise, bond prices fall. So whos right stock or bond investors? Who is the Super Saver?? We expect stocks to provide much better returns than bonds in 2010 and likely for this new decade

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Commentary for March 2010 :: The Visible Hand

The new bull market began almost a year ago, but most investors still do not view the 67% jump in value from the lows as enough proof that a new bull market is underway. Sentiment is skeptical as money continues to flow in greater proportion to bonds than stocks. February, the 12th month of the new bull market provided investors with a rebound in stock prices (the S&P 500 advanced 3.1%) following a negative January. Domestic trumped foreign as investors worried about Greece financial deterioration and Euro assistance. As we discussed in our commentary last month, investors universe of investing is getting more than ever, global. Please read on in the full commentary for more detail of how we are thinking globally.

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Commentary for February 2010 :: New Decade, New Book; Chapter 1

Since January 19 investors confidence has been shaken by the same group that helped restore it in 2009: government. For the month of January, stocks lost -3.6% as measured by the broad S&P 500. During 2009, global government responses were tailwinds boosting the financial markets. Action to stimulate a year ago was synchronized globally and near unanimous. Now, the direction of the wind is shifting slowly to a headwind as countries economic conditions improve at differing rates. Accordingly, the unwinding of quantitative measures has now become asynchronous as some governments are beginning to pull back stimulus, while others continue their fight to stay afloat. The best current example of this contrast is China (and other emerging markets) compared to Greece and other distressed European countries.

Over the next decade, a new book will be written. Its first chapter has already begun, and the lead character is looking to be China. The stage, once dominated by the US economic engine, is changing. Chinas economy, while only one-third the size of the US, grew +8.7% last year. We expect the global recovery to continue; we expect the US recovery to continue. But both will occur in a non-linear fashion and there will be bumps along the way.

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Commentary for December 2009 :: Directionless Volatility

Stock and bond markets rebounded in November, following a soft October. The S&P advanced just shy of 6% during the month, bringing the markets back to levels seen in mid-October. In recent weeks, the markets have managed to drift higher, but have seemingly bumped into a ceiling; unable to consistently close above key levels. For example, the S&P 500 (currently around 1,100) is roughly mid-way between its October 2007 peak and its March 2009 low.

Looking to the past, it is fairly common that the market enters a phase of directionless volatility following a dramatic run-up from low levels. Investors naturally second-guess the future prospects for a continued rally. Still, in both 2002 and 1990 the market initially struggled to surpass the 50% retracement rise. However, once the market managed to break out above that level, the resistance became a new level of support (like a floor) for additional gains over subsequent months. Indeed, we believe that the bulls retain the upper-hand over bears until the bill comes due (when we must pay for stimulus and deficits in the form of higher taxes and/or interest rates at some point). But with the economy experiencing a fragile recovery, it is likely that bill will not come due in the short term, especially with politicians up for re-election in 2010 (interest rates and taxes are likely to remain low for quite some time yet).

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Commentary for November 2009 :: Jump Ball

Volatility returned to the financial markets in the final days of October. And, after 7 consecutive months of positive performance for equities (since March 9 low), equities took a pause in the most recent month. During the last third of October, investor focus shifted from rebound after deep losses to sustainable recovery. The usual question following a V shaped down/up experience is, is the bounce back too great or ahead of itself? It is natural and normal to see a moderation of a reflex rally.

As we have been saying recently, the recession is probably over by an economists definition. However, during the next phase of the recovery, many doubts will surface. We expect that the economic recovery will be choppy; at times feeling like the economy is slipping back to darker days. Economic readings (unemployment, GDP, housing) might improve, only to later take a temporary step back in the wrong direction. We do not expect the recovery to look like a perfect V, but we do expect it to be muted and slower than recoveries of the past. We believe investors must have a more global attitude when investing going forward (discussed in previous commentary). While the United States and other developed country economies are likely to see economic recovery at a more muted pace, developing/emerging economies (such as Brazil, Russia, India, China) look to grow at a much faster pace. We are including this perspective in client portfolio construction by increasing our exposure to these markets.

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Commentary for September 2009 :: Nowhere Fast

Since March 9, the stock market has rallied for 6 consecutive months and has rebounded almost 53% (through August 31). With such a robust rebound, a question increasingly on investors minds is, where to from here? The recovery thus far developed from very depressed levels; the market had over-reacted too pessimistically to the financial events of 2008. We believe that economic recovery is underway. And, while recent corporate earnings have been surprisingly good, they have been the result of aggressive cost cutting rather than increasing revenue (sales). For the next month or two, the markets may go nowhere fast as investors want to see some revenue growth as well (pickup in demand). However, we believe it is still generally more dangerous to be short (out) of the market than long (invested) for two reasons:

1. The market technicals (trend, moving averages, formation, breath, and leadership profile) remain supportive of being a time in the market investor.

2. Additionally, companies and economic data will continue to have easy comparisons against last years dreadful 4th quarter, and can surprise expectations to the upside.

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Commentary for August 2009 :: I Have Five; Who Will Make it Six?

Including the month of July, global stock markets have advanced for five consecutive months (beginning with March); a much welcome departure from what had previously been 17 months, or six consecutive quarters, of negative returns. Client portfolios have enjoyed a significant rebound in value since March 9, and continue to beat the S&P 500 numbers year-to-date (all but the most conservative client objectives). This lends support to the 3 key investment ideas we hold for the New Normal future being:

1. Asset values will inflate because of the global tsunami of policy initiatives;

2. International equities are likely to maintain dominance;

3. Active management will outperform passive (index) strategies.

As we continue to move away from the lows that were established on March 9, increasing are the odds that we will rebrand the Spring Rally (began March 10) as the start of a new bull market. We believe (and hope) the bear market is over.

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Commentary for June 2009 :: The New Normal Future

Since March 9, the markets have experienced an impressive rally. This rebound has come in the face of ongoing bad news, albeit news that has been less-bad than had been seen several months ago. This experience is most attributable to a depression / Armageddon-like scenario being priced out of the market. Still, while the rally has been impressive, many institutional investors remain skeptical that this recent recovery is sustainable.

Aside from the sustainability question, we do believe that the worst for both the economy and the stock market is likely behind us. We do believe that the lows for this cycle have been set in the stock market. Still, we further believe that from this point forward, investors will be faced with a New Normal. This new normal market environment will likely be one in which we see a slower pace of economic recovery in the US than in the past. We believe that the process of deleveraging and a more conservative spending mentality has just begun for the US consumer (which has represented as much as 70% of US GDP until recently). Additionally, we increasingly believe that it will be developing economies, also referred to as emerging markets, that will be the source of the most robust growth.

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Commentary for May 2009 :: Investing: Ex-Post or Ex-Ante

Since March 9, the stock market as measured by the S&P 500 has rallied nearly 30% through the close of April making it the 4th longest bear market rally in 110 years. Encouraging it has been, indeed! Investor skepticism surrounding the recent rally is that bear markets are a function of time and price; the price decline of the current bear market has been severe, but the time (duration) is still shorter than average. Whether or not March 9 will stand as the start of a new bull market can only be known in hindsight ex-post.

Client portfolios have advanced nicely despite holding a lot of cash and have positive returns in April and for the Year-to-date periods (through April 30 the S&P 500 was still slightly negative for the YTD). Despite outperforming the S&P YTD, our greatest risk at this point remains too much cash, which holds back portfolio value advances as the rally develops. At the present, we feel pressure (self imposed) to begin putting some cash back to work and get portfolios moving back toward their investment objectives.

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Commentary for March 2009 :: Misery Unending

It seems all news is bad, investment horizons are increasingly short, and the appetite for risk grows smaller each day. Both economic and financial news is bleak. The credit crisis and its dampening effects on the economy rage on globally. The result: many market indexes are making new lows (from November 20, 2008) despite a new financial stimulus plan, TARP, and even TALF. Part of investors challenge centers around a vague communication about how these plans are evolving under the new Washington administration.

Fear of the unknown is widespread, and the unknowns today appear too numerous to count. Words once considered too inappropriate to utter, like nationalization and depression, seem to now be part of our language. Have we arrived at the point of maximum fear (misery)? If so, are we not therefore, at the point of maximum opportunity?

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Commentary for February 2009 :: No Crystal Ball

Down 8.6% on the month; the worst January stock performance for the S&P 500 ever. Most are thinking, How much lower can stocks fall? Maybe I should call it quits with this long-term investor idea. Careful now the drop in January is NOT a new low. The current Bear market low was established November 20, two months ago. Given continual bad news reports in the press, one might think the market just hit another new low. In fact, since the November 20 low, the S&P 500 is still up 10.4% as January wraps up.

It is clear that the financial markets are not yet functioning properly. The financial markets will begin to function more normal when participants see plans for a government bad bank plus foreclosure relief. As the bond market begins to function more normal, stocks will rally and gradually the economy will return to growth.

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Commentary for December 2008 :: Who is Stealing Christmas

As investors put a wrap on 2008, it feels like Mr. Grinch stole more than Christmas. This year will make history next to 1930-31 as THE second most horrible performance ever experienced in history. It is safe to say, none of us have ever experienced such a severe negative market. The unprecedented financial crisis is starting to show improvement, but it has transitioned its effects into a severe global recession.

November was not as bad as October, wherein the average domestic stock fund lost over 18%. Still, the selling storm has everything to do with deleveraging and very little to do with fundamentals. Now is an attractive time to ready for the future.

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Commentary for November 2008 :: Horrific Trick

Despite two large one-day rallies during the month (advances of over 10% on October 13 and October 28) and a strongly positive final week, October was difficult for investors. It was somewhat encouraging that the market was able to shoot higher following the lows of the previous days, which may signal that a bottom for equities is slowly being put in place. As we discussed at our town hall meeting for clients earlier last month at Wedgewood Golf & Country Club, we do not believe that a stock market recovery will be immediate like a V or W. More than likely, we believe it will take the shape of an elongated U, wherein we bounce around a bit around the lows (the bottom of the U), and then recover strongly.

We have been working in client portfolios over the last week in transition for when markets rebound higher. We do know that recent events have created major uncertainty, and major uncertainty usually brings major opportunity. In the words of Warren Buffett, be greedy when others are fearful, and be fearful when others are greedy.

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Commentary for September 2008 :: Playing Hurt

The month of August provided some relief from two consecutive months of decline in June and July. Thus far in 2008, 3 months have been positive (April, May and August) while 5 have been negative. The average domestic stock fund edged up 1.2% in August but remains off 10.1% for the year-to-date. The US economy has slowed dramatically in the recent year, and the US government and Federal Reserve have responded with massive fiscal and monetary stimulus - a pain-killer of sorts. It appears the US economy is continuing to play hurt in a sense.

What should investors expect going forward? What do we expect? There are many worries unwinding in, what appears to be, slow motion. Banks and financial institutions are mending their fences, trying to rebuild the financial balance sheets (still writing off bad loans and trying to attract new investment capital). Individuals are losing jobs, seeing income evaporate as high fuel and food costs rise; and they worry about declining home and investment values. Now foreign economies are slipping. And, in a couple of months a new President will be elected. The markets can, and often do, climb a wall of worry. But can it climb this many large worries?

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Commentary for August 2008 :: Bubble, Bubble! Is Oil In Trouble?

July was another month of stock value declines. However, the Federal Reserve has aggressively addressed two issues: a frozen credit market (difficult for businesses and individuals to borrow), and a slowing economy. The Fed has lowered interest rates from 5.25% to 2% in six months. Despite these actions, a growth risk still remains. At the same time, inflation poses a significant concern and its outlook remains highly uncertain. The Fed expects inflation to lessen, but thus far it has been stubborn. Stock vigilantes have been battling oil (and commodity) speculators. Since July 14, oil has declined over 20% from $147/barrel to $115/barrel. Oils price bubble is in trouble because US and worldwide demand is sliding due to too high prices. The transition will not be quick; Rome was not built in a day; and, battleships do not turn on a dime.

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Commentary for June 2008 :: Muddling Along

The U.S. economy appears to be muddling along; potentially stuck in the mud that will not produce a recession or a recovery. The economy does not appear very vibrant. Forecasts call for slow, slow growth. Worries abound for investors: bank and real estate loan problems, declining real estate values, rising inflation (particularly in oil/gas, food and commodities), and a low dollar trade value. House prices are down and stock prices are still below where they ended 2007. The prospects appear to suggest a slow growth economic environment with worrisome inflation for the next couple of years. And, if the U.S. economic outlook looks soft and inflationary, the world economic outlook seems to be muddling down as well. After all, anytime the financial structure is de-leveraging, it takes a while to complete the process.

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Commentary for May 2008 :: Best House in a Tough Neighborhood

This is not a monthly commentary on the state of real estate or housing which continues to capture news headlines. Rather, in the current economic environment, stocks offer the best investment choice for long term investors. Even with the economic neighborhood looking bad (soft), suggesting that company earnings are also uncertain (earnings largely influence the movement of stock prices), stock values are still more attractive than owning expensive (low yielding) Treasuries. Stocks are cheap even when one considers the worst case earnings scenarios.

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Commentary for March 2008 :: Plumbing Still Clogged

Two fears currently overhang the US economy: recession and inflation. The troubling prospects for a long-running recession and spiraling inflation suggest no quick solution to our financial woes. It started months ago, even years ago, when interest rates encouraged “lenders” to provide money to anyone who could fog a mirror. Irrational exuberance has unraveled into irrational exasperation wherein the financial markets are frozen; finding money is very difficult. The backdrop of frozen credit, akin to clogged plumbing, holds a key to future market recovery. At the moment, it appears this crisis is in slow motion; the credit pipeline is stubbornly plugged and flow is not easily restored. As the clog begins to move, so too will be better days for the stock market.

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Commentary for February 2008 :: Weak Link in the Chain

January 2008 will go down in history as one of the worst starts for the financial markets ever. Large write-downs by some of the most prominent banks have led those on Wall Street to grow very pessimistic about the prospects of all companies (not just the banks or those with exposure to mortgages), painting all with the same brush.

It is likely that October ushered in the start of a bear market. If that is the case, we are four months into it; the average bear market lasts just eight. That could mean that a new market advance is not far off (April or May perhaps).

In the meantime, we are looking for opportunities to invest client cash in stock funds, which are great values today relative to just a few months back. Continue to keep a long-term investment discipline and emerge successful.

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Commentary for December 2007 :: Long Term is a Green Banana - Part II

On November 27th, we wrote Part I, of Long Term is a Green Banana to discuss how violent market sell-offs shorten investor time horizons. To be sure, the economic forecasts and recent financial news is not good (but what do you expect from the news?). As such, client portfolios show November’s negative effects, but the year is still a positive experience. Additionally, in the past week we have seen large investors swoop in to take advantage of some good values (Abu Dhabi and Citigroup); they are investing for the long-term.

What do long term investors do? They stay invested and view corrections as prime buying opportunities for the long-term!

Happy Holidays!!!

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Commentary for November 2007 :: The Good War

A war has been taking place in the markets recently - one in which bulls continue to battle bears. One day the bull maintains the upper horn, only to be knocked backward the next by the claw of the bear. Is the current bull market over?

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Commentary for September 2007 :: Where is Waldo?

The credit crisis, which has been provoked by defaulting subprime and Alt-A home loans, can be likened to a futile exercise of Where’s Waldo?

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Commentary for August 2007 :: After Christmas Sale In July!

The recent market correction has created a buying point that can be likened to an After-Christmas sale... In July!

Also, a repost of Thinking About Tomorrow - Our ccurent view of the market moving forward.

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Commentary for July 2007 :: Stressful Days Ahead

As a supplement to our quarterly newsletter, we discuss why we beleive that volatility will likely stick around through the remainder of the summer, providing a source of much stress for investors.

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Commentary for June 2007 :: Are Stocks Overvalued

This monthly commentary discusses our response to a common question after almost five years of price appreciation.

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Commentary for May 2007 :: A Spring to Remember

It certainly has been an eventful spring. While the recent market volatility has caught many by surprise, looking at history shows us that the events are not reason to worry for those invested in the long-term.

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Commentary for March 2007 :: Market Commentary

Discussion of the Market’s one-day decline of 3 percent.

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Commentary for December 2006 :: Golly!!!

The markets finished the year on a tear, giving investors reason to cheer.

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Commentary for November 2006 :: Turning Point - Indeed!

A look at 2006 as a turning point year. The Fed on Pause

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