Does performance tell the whole story?
American stock markets have delivered some exceptional performance in recent years. Just look at the Standard & Poor’s 500 (S&P 500) Index. Barron’s reported the S&P 500, including reinvested dividends, has returned 215 percent since April 30, 2009. The index is currently trading 50 percent above its 2007 high.
The rest of the world’s stocks, as measured by the MSCI EAFE Index, which includes stocks from developed countries in Europe, Australia, and the Far East, returned 97 percent in U.S. dollars during the same period. At the end of April, the MSCI EAFE Index was 20 percent below its 2007 high.
If you subscribe to the ‘buy low, sell high’ philosophy of investing then these performance numbers may have you thinking about portfolio reallocation. However, performance doesn’t tell the full story.
For example, there’s a significant difference between the types of companies included in the two indices. At the end of April, Information Technology stocks comprised 22.5 percent of the S&P 500 Index and just 5.7 percent of the MSCI EAFE Index. Financial stocks accounted for 14.1 percent of the S&P 500 and 21.4 percent of MSCI EAFE.
It’s important to dig beneath the surface and understand the drivers behind performance before making assumptions or changing portfolio allocations.
Even so, European stocks have the potential to deliver decent performance this year, according to Barron’s. “The case for a revival in European stocks, particularly the Continent’s many multinationals, rests in large part on expectations for improving global growth…This year Europe’s GDP is expected to increase by about 2 percent, after growing 1.7 percent in 2016 – better than the U.S.’s 1.6 percent.”
Last week, the S&P 500 Index moved slightly lower. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
GPS STRATEGIES: Our strategies remain unchanged with the exception of keeping a closer eye on the stock market. As we are in a seasonally challenging time, meaning the bulk of historic market returns come from October through April as well as a federal Recerve meeting next month and pleanty of political issues to consider we are considering hedging certain accounts to protect YTD gains as well as protect against a potential market correction. With no “fat-pitch” (highly undervalued) investment opportunities we remained poised to keep our portfolios diversified and nimble. While we still favor international markets, i.e. Europe, developed and emerging markets as well as certain interational fixed income investments there is nothing right now that is a screaming buy. A market correction could solve this as buying assets at lower prices from today would be more attractive. Our alternative investment stable is solid and doesn’t need a great market or economy to perform as expected. As we migrate towards more alternatives in this high market valuation envirnment we will keep our readers abreast of those selections and decisions. For now, we continue to monitor and adjust portfolios based on current scenario analysis and outlooks.
THE HERD OF UNICORNS IS GROWING. Since 1996, the value of companies listed on American stock exchanges has increased from 105 percent of gross domestic product (GDP) to 136 percent of GDP, according to The Economist. (GDP is the value of all goods and services produced in the United States.)
During the same period, the number of companies listed on American exchanges has fallen from 7,322 to 3,671.
This fact might lead you to surmise that a few businesses have become dominant in their industries, but that’s not the case. Many companies are choosing to remain private rather than issue shares through an Initial Public Offering (IPO) and then trade on an exchange. Financial Times explained:
“Over the past 10 years the number of initial public offerings in the United States, and the total amount of equity raised by them, are way down on historical averages. If these had held there would have been more than 3,000 new public companies in the past decade. Instead, we have had fewer than half the number of IPOs.”
Why don’t the leaders of vibrant young companies want to issue shares? There may be several reasons:
• Technology-intensive businesses may need less capital.
• It’s relatively easy to raise money in private equity markets.
• Regulatory requirements for public companies increase litigation risk from securities class
• Private markets are better at allowing companies to take a long-term perspective
The reluctance to take companies public has fattened the world’s herd of unicorns – private firms worth over $1 billion that are not subject to public-company standards for accounting and disclosure. There are currently about 100 of them.
Weekly Focus – Think About It
“It may be possible to gild pure gold, but who can make his mother more beautiful?”
-Mahatma Gandhi, Leader, Indian independence movement
The Jim Goodland Team at GPS
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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index. * Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
http://www.barrons.com/articles/europe-on-sale-time-to-buy-foreign-stocks-1494648930?mod=BOL_hp_highlight_1 (or go to
http://us.spindices.com/indices/equity/sp-500 (Click on Sector Breakdown to view pie chart) (or go to https://s3-us-west-
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-15-17_TheEconomistWhy_the_Decline_in_the_Number_of_Listed_American_Firms_Matters-Footnote_4.pdf)
https://www.ft.com/content/9fcfb668-3409-11e7-99bd-13beb0903fa3 (or go to https://s3-us-west-
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Spire Wealth Management, LLC), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
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