THE BLOG

31
Dec

Happy New Year! Let’s Look Ahead to 2016

Let's look ahead to 2016 and talk about what advisor trends to expect, and also look back at the best news from 2015.

The post Happy New Year! Let’s Look Ahead to 2016 appeared first on Orion Advisor Services.

29
Dec

Party Like It’s 1999!

party

Content provided by Rusty Vanneman, CFA, CLS Chief Investment Officer

The current stock market environment feels a heckuva lot like the late 1990s. Large-cap growth stocks, particularly some high-profile Internet companies, are leading the way now, just as they did then. Value-oriented investors, including some of the most well-known portfolio managers, are getting shellacked. The international markets are also trailing the U.S. market by large margins. Overall, the current environment is very similar to what we witnessed more than 15 years ago when globally diversified portfolios trailed the S&P 500. Let’s look at what happened then – and what we should be prepared for now?

First, the numbers, as of November 16, 2015 (all numbers from Morningstar):

  • U.S. large cap growth stocks are leading all U.S style boxes – by a lot.
    • Over the last year: Large-cap growth has dominated other style boxes. It is up nearly 9%, crushing the second place style box at just over 2%.
    • Last three years: Large-cap growth is up 20% a year, again in a commanding lead over the next best style box.
    • Last five years: Large-cap growth is up just over 16% a year, the best performance of any U.S. style box.

At CLS, we have been overweighting large-cap growth stocks for some time now, particularly through our high-quality investment theme. This positioning has helped us considerably.

So, if this is like the late 1990s, what can we expect moving forward?

  1. Growth could continue to outperform in the near-term. In fact, we think it still can. Not only is momentum on its side, but we believe relative valuations still support this positioning. While large caps compared to small caps aren’t as cheap as they once were, and neither is growth compared to value, it’s still a net lean towards large cap growth – at least for now.
  2. But this performance will eventually reverse – and it will likely be with a vengeance. Look at the late ‘90s experience. Growth peaked in early 2000, and within a few years all of the outperformance of growth versus value – and then some – was lost. It pays to be vigilant.

party 2

Next, let’s look at the outperformance of domestic stocks versus international.

  • The U.S. stock market is simply crushing international.
    • The U.S. market has an annualized five-year return of 14%. This compares to MSCI EAFE’s five-year annualized return of 4%. MSCI Emerging Markets (EM), meanwhile, has lost nearly 6% a year.
    • Over the last three years, the U.S. is up 17%, EAFE is up 8%, and EM is down 6%.
    • The U.S. is up 2% over the last year, while the EAFE is down almost 3% and EM is down 18%.

At CLS, we have also been overweighting international stocks for some time. This positioning has not helped us – yet.

So, what can we expect moving forward?

  1. Domestic could still outperform in the near-term. It has momentum on its side. But, it does not have relative valuations supporting its positioning. In fact, relative valuations strongly support international – so much so that expected returns for international over domestic is over 7% per year according to our proprietary CLS score.
  2. Also, this performance will eventually reverse – again, with a vengeance. After the 1990s, domestic markets peaked in mid-2000, and within a few years all of the outperformance of domestic versus international was lost.

party graph 1

Note: Jackson Lee, CLS Investment Research Analyst, did some serious number-crunching on this article.

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.  You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recom­mended in this report and should understand that statements regarding fu­ture prospects may not be realized.  You should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any unsystematic risks associated with particular investment styles or strategies. The graphs and charts contained in this work are for informational purposes only.  No graph or chart should be regarded as a guide to investing.
The S&P 500 Index is an unmanaged composite of 500-large capitalization companies.  This index is widely used by professional investors as a performance benchmark for large-cap stocks.  The MSCI EAFE International Index is a composite index which tracks performance of international equity securities in 21 developed countries in Europe, Australia, Asia, and the Far East. The MSCI Emerging Markets (or EM) Index is a composite index which tracks performance of large and mid-cap firms across 21 countries classified as emerging market countries.  The index tracks 824 constituents covering 85% of the free float-adjusted market capitalization in each country.   An index is an unmanaged group of stocks considered to be representative of different segments of the stock market in general.  You cannot invest directly in an index. 2803-CLS-11/30/2015
29
Dec

2015 Year In Review

This past year was a big one for everyone at Orion. Check out our 2015 year in review.

The post 2015 Year In Review appeared first on Orion Advisor Services.

23
Dec

Planning for 2016, Trends and Insights, and Advizr Express

Watch today's Orion Weekly for news about 2016 Orion Tech Labs, our new Business Intelligence Apps, and Advizr Express.

The post Planning for 2016, Trends and Insights, and Advizr Express appeared first on Orion Advisor Services.

22
Dec

Get Your Data On with Business Intelligence

Check out the Orion guide on how to get started with Business Intelligence.

The post Get Your Data On with Business Intelligence appeared first on Orion Advisor Services.

21
Dec

5 Factors for 2016 and Beyond

businessman checking final  mark on checklist

businessman checking final mark on checklist

Content provided by Kostya Etus, CLS Associate Portfolio Manager

2015 is coming to a close which means it’s time to reflect on the year that was. But, more importantly, it’s time to plan for the year that will be. Planning for the future (for anyone and anything) has to start with the three basic questions:

  1. Where are you today?
  2. Where do you want to go?
  3. What needs to happen to fill the gap?

Answering these questions may seem tough, but unfortunately that is the easy part. The tough part is committing to your plan and seeing it through to the end. I recently read an article [LINK: http://www.iris.xyz/development/5-factors-financial-advisors-should-consider-growth-2016-and-beyond] by Andrea Schlapia listing five things advisors should be thinking about for 2016, and I was very happy to note that CLS has them all checked.

1) Appoint and Support a Chief Compliance Officer

The regulatory world is not getting any simpler. Recent developments include newly proposed laws on fund liquidity constraints, Social Security benefits, U.S. Department of Labor fiduciary duties, and restrictions on stop-loss orders. Furthermore, enforcement agencies are cracking down on financial institutions. Outside of the dramatic headlines surrounding Curian Capital and F-Squared Investments, it seems there is a new horror story of wrongdoing every week. Compliance has become a critical function and needs to be embraced by the entire industry to stop the black eyes. Luckily at CLS we can rest easy knowing our stellar compliance team is on the job.

2) Utilize Technology

This is not only necessary to pursue younger clients; People of all ages are using technology more and more every day. Everyone wants things done fast and done right, and technology gets us there. For example, many people favor digital access to their accounts and paperless statements these days. But why stop there? How about video statements, robo-advisor functionality, and a simply beautiful website? I would say CLS is ahead of the curve on this one.

3) Differentiate Your Firm

If all advisors say the same thing and make the same promises, how do you choose? The answer is through trust and customer service. As Schlapia writes, customers need to know you are thinking about them first and foremost. If you have this down, it will serve you far more than differentiating based on fees or products. At CLS, we have always put our clients first by prioritizing the client experience every step of the way.

4) Create Strategic Alliances

Having dependable partners is an invaluable resource. Whether in sales, trading, portfolio management, or anything else, partnering with other firms to achieve common goals is a favorable endeavor. Primarily, it allows you to share costs and skills to provide clients with the best service possible. CLS has many dependable partners in the industry that we are proud to work with.

5) Build a Team Infrastructure

“Team[work] is no longer an option, it is a necessity,” Schlapia writes. Having a team approach is the most successful strategy from an operational standpoint as it allows for the combination of skills, time, and expertise. Beyond operations, it creates a cohesive atmosphere (culture) and leads to a collaborative environment (which breeds innovation). For CLS, although I can certainly mention how important teamwork is internally, in this context I will focus on our teamwork with advisors. Advisors, especially those with rapidly growing businesses, need to focus on what they are good at. “Advisors typically find themselves working in the business rather than on the business,” Schlapia writes. But by delegating portfolio management to CLS, advisors can form a cohesive team and build the infrastructure they need for further growth.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  This information is prepared for general information only.  We may offer direct access or ‘links’ to other Internet websites. These sites contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of CLS Investments, LLC (CLS). CLS does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there. Visitors to these websites should not use or rely on the information contained therein until consulting with their finance professional. CLS does not necessarily endorse or recommend any product or service described at these websites.
2874-CLS-12/9/2015
17
Dec

An All-New Data Analytics Platform for Orion Advisors

Watch today's Orion Weekly to get up to speed on our all new data analytics platform, Orion Business Intelligence.

The post An All-New Data Analytics Platform for Orion Advisors appeared first on Orion Advisor Services.

15
Dec

Likelihood of Interest Rate Hikes and Their Effect on Your Portfolio

interest rates

Content provided by Josh Jenkins, CFA, CLS Portfolio Manager

Recent guidance from the Federal Reserve (Fed) suggests it may finally be ready to lift interest rates at its next meeting on December 16, and the market has taken note.

According to Bloomberg, as of December 10 the probability of a hike was 80%. Bloomberg has a cool function that calculates the probability of a rate hike at any given Federal Open Market Committee (FOMC) meeting based on the pricing of certain derivative contracts. This function is illustrated below and has frequently been quoted in the financial media.

Josh-blog-chart

In addition to determining the probability of a rate move at any given meeting, the function also determines the probability of interest rates falling within a particular range. The table below illustrates this probability distribution for interest rates in December 2016. This distribution implies that the benchmark rate will be at 0.86% in 12 months. Given the benchmark rate is currently between 0.00% and 0.25% (we can assume the middle point of 0.125% for simplicity), pricing in these derivative contracts implies three rate hikes over the next 12 months.

Here’s the formula:

(Interest rate in 12 months – current interest rate) / size of each rate hike

(0.86-0.125)/0.25 = 3

JJ-Chart-1

Three rate hikes in the next 12 months!? We should sell all our bonds right!? Wrong. Three rate increases in 12 months can be considered a slow and steady pace, and there are several reasons to believe this slow pace will not cause interest rates to rise on the long end of the curve:

  • Conflicting economic and inflation data
  • Nominal growth is expected to remain low
  • Global interest rates are low
  • Potential equity market weakness

So what could bond portfolio returns look like in this scenario (rates increase on the short end but not the long end)? Below is a simplified analysis to illustrate:

josh-chart-2

The table above breaks down the components of total return for the Aggregate Bond Index (a proxy for the domestic bond market). The return components include price return and yield. From this we can see the rise in interest rates reduces the value of the bonds (price return), but the coupon payments (yield) are more than able to cover the loss. To emphasize: in this scenario there will likely be some initial volatility, but the return on fixed income can still be positive, even with a rate hike.

This simplified analysis ignores the effects of a potential increase in default rates (this would lower expected bond returns), the effects of the roll yield (this would increase expected bond returns), and convexity.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change.  No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice.  This information is prepared for general information only.  It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.  You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.  You should note that security values may fluctuate and that each security’s price or value may rise or fall.  Accordingly, investors may receive back less than originally invested.  Past performance is not a guide to future performance.  Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk.  These risks are in addition to any unsystematic risks associated with particular investment styles or strategies. The graphs and charts contained in this work are for informational purposes only.  No graph or chart should be regarded as a guide to investing.
2901-CLS-12/15/2015
15
Dec

Fuse 2015 Spotlight Series: AdvisoryWorld

Read today's blog entry to learn more about Fuse 2015 award winner AdvisoryWorld and their contribution to their Orion integration.

The post Fuse 2015 Spotlight Series: AdvisoryWorld appeared first on Orion Advisor Services.

10
Dec

Advisor Success Advocates and a New Orion Connect User Experience

Check out today's Weekly to see why we now have Orion Advisor Success Advocates, and see details on how to make your Orion Connect your own.

The post Advisor Success Advocates and a New Orion Connect User Experience appeared first on Orion Advisor Services.