Well, 2015 is done and we start the New Year with a really nice China induced sell off!
I am about half done reviewing performance reports on the accounts I manage, and it looks like the vast majority of those, in my fully diversified growth portfolios, are down between 1% and 2% for 2015, some closer to 3%. The growth and income portfolios did a bit worse, because 2015 was not friendly to the bond market.
Quite frankly, I was expecting that fourth quarter rally to put us into positive numbers, but Santa was not that generous. For perspective, consider what happened to various market indexes:
Emerging Markets (symbol EEM), -18.07%
Foreign Markets (EFA) – 3.48%
Russell 2000 (RUT, small caps mostly) – 5.71%
Bonds (as measured by the AGG*) – 1.92%
S&P 500 – .73%
Dow Jones Industrial Average – 2.23%
(Source, Dorsey Wright and Associates, January 8 2016. Past performance is not indicative of future returns. The above indexes are unmanaged groupings of stocks, bonds and commodities. There can be no direct investment in an index.”)
All things considered, I don’t like going backwards, but it comes with the territory and clearly 2015 could have been much worse if we had any international or commodity holdings.
As we go into 2016, our portfolios are still heavily weighted to Healthcare, about 35% (some more, some less). I find it interesting that in that list above, the Russell 2000 was down almost 6%, but our small cap healthcare position (Powershares Small Cap Healthcare, symbol PSCH) was up 20% last year. Kind of shows the strength of the Healthcare sector. Wish I had more of that one!
One of my primary holdings last year, which gives us exposure to the blue chip part of the market, is the Powershares Buy Back Achievers fund, PKW. I have been watching its performance as the fourth quarter rally developed. It simply was not keeping up with the broader market. As the markets sold off this week, actually looking rather ugly on a technical basis, I decided that some defense would be prudent. So this position was sold and we are now sitting with about 15% in cash. If the market weakness continues I will raise more cash. If it stabilizes and recovers, that money will get deployed into a stronger position.
Quite frankly, this is why I like the relative strength tools that I use. They really point out what sectors of the market are the strongest, and which are the stronger securities in those sectors. The mantra I follow is It is ok to be wrong, it is not ok to stay wrong! It is exactly these relative strength tools that kept us out of commodities and emerging markets last year.
As we enter 2016, Healthcare is still among the strongest sectors. Internet is right behind it followed by what we call Consumer Discretionary (think things you don’t really need, but would like to have). As of yet, there is no hint that International markets, or those parts related to commodities (like oil) are coming back. So for now I will avoid anything in those areas. Basically, all the major trends that we had in 2015 are continuing into 2016. Thus my tag line, Out with the Old, and heck, let’s continue with the Old!
For those of you with fund choices in 401k plans, stick with US based fund selections. Look for an equal mix of what are called large cap and small/mid cap funds. (see your fund descriptions to find those that fit these categories)
November and December are kind of tough months to get a handle on the economy in general. Employment numbers looked real strong in December, but can be distorted by the seasonal hiring for the holidays and year end layoffs as companies reposition themselves for the New Year. Housing still appears to be doing fine, undoubtedly supported by those racing to buy before interest rates go up more.
Thank you for your continued Trust and Confidence.
*The AGG is the Total Bond market index. The commodities index referenced is the DWACOMMOD which is an equal weighted blended index, proprietary to Dorsey Wright and Associates, and is not published.
Gregory G. Riggs, CFP
Riggs Wealth Management
Phone: 425 822 3850
Securities & Investment Advisory Services offered through KMS Financial Services, Inc. KMS is a FINRA registered broker/dealer and SEC Registered Investment Advisory firm.