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Section Summary
- Market Notes – Markets were broadly positive in the second quarter, but fairly volatile month-to-month. The key factors driving market activity were anxiety over trade tensions and optimism that the Fed would cut interest rates to support the economy.
- Equity & Fixed Income Comments – Our portfolio positioning in the equity and fixed income components of client portfolios reflects our relatively cautious outlook for U.S. equities and U.S. corporate bonds. On the equity side, we made an investment in a mutual fund whose mandate is to invest in companies that have a history of growing dividends. In fixed income, our emphasis continues to be on the higher quality and non-cyclical parts of the credit markets. We like emerging market bonds, securitized assets, mortgage-backed securities, insurance-linked securities and infrastructure debt.
- Research Focus – We have found relatively few investment opportunities among smaller domestic companies, primarily because of where we believe we reside in the economic cycle. However, the story is much different among foreign small- and mid-cap companies. We believe foreign small caps have a number of attractive characteristics that make them an appropriate piece of a client’s long-term equity portfolio.
- Client Focus – One of the key inputs to asset allocation planning for clients is capital market assumptions. What are each of the asset classes being used in client portfolios expected to return? Looking back at historical market returns can be easy for some advisors to do, but we believe those numbers set inappropriate expectations. We think looking forward sets more rational expectations.