February 2017 Release Notes

Orion February 2017 Release Notes

Get the in-depth details of all the highlights of our Orion February 2017 Software release in today's Release Notes blog post.

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Trading on Headlines: One Strategy That Did Not Work in 2016

Glass globe on  stock market chart . shot with very shallow depth of tone

Content provided by Case Eichenberger, CIMA, CLS Client Portfolio Manager

In 2016, every major index that CLS tracks was positive, as shown in the chart below, and outperformed cash (which is the whole reason to invest in stocks and bonds in the first place).


In the CLS Quarterly Market Outlook, we often write about what worked and what did not work for our globally diversified portfolios. In a well-diversified account, there is always something that doesn’t work. For example, in 2016 we noted that health care stocks were net negatives for investors. After a great year in 2015 (+6.84%), the popular Health Care Select Sector SPDR® ETF had a negative return on the year in 2016 (-2.76%). In the fixed-income sector, municipal bonds did not work for investors and lagged the overall bond market. Without a doubt, holding a very high allocation to these two areas of the stock and bond markets would have caused investors to second guess their choices.

Now, let’s look at this in a different way. Is there a strategy that did not work in 2016? That’s a tough question. How could any strategy lose money when all major markets moved higher? Well, it turns out, there was one: market timing or trading the headlines/news — otherwise known as being scared out of the market. At CLS, we preach staying invested at your Risk Budget and avoiding the emotional pitfalls that lead to market timing; but unfortunately, some investors end up trying to time anyway. (To be fair, a large majority of investors do avoid market timing and should be commended for keeping their emotions in check.)

Let’s take a look at two scenarios for Client X and Client Y, as illustrated in the graphic below. The first chart shows Client X and his experience/returns in 2016 at a moderate Risk Budget. He had a solid year. It started out a little rocky but ended on a very positive note. How would that experience change if the client had been at the same Risk Budget, but sold out of the market throughout the year?  The pain points are shown on the Client Y chart. The first happened at the beginning of 2016 when the S&P 500 experienced one of its worst opens to the year. The client then stayed in cash until getting back in the market in early April. From there, another dramatic headline around the U.K.’s decision to leave the European Union prompted a second quick exit. Client Y stayed in cash until the end of September then got back into the market and stayed in until year end. Overall, Client Y’s market timing strategy would have performed negatively for the year.

At CLS, we hope investors can learn from these types of mistakes and stay invested, even when headlines and volatility make the market hard to stomach


Global Value Investing Had a Strong 2016

Global Value investing was one notable strategy that worked in 2016. This strategy is overweight in countries and regions that trade at discounts to their average valuations, and underweight in countries and regions that are more expensive than their average valuations. The underlying idea is that reversion to the mean will take place as the cheap areas will have strong, positive performance and the expensive areas will have weaker or even negative performance.

For dollar investors (such as the majority of those reading this blog), the returns of the 15 cheapest countries, as measured by the 12/31/15 Price to Earnings (P/E) valuation metric, returned 9.09% on average and ten out of the fifteen were positive. The biggest outlier was Brazil at 64%. By contrast, the 15 most expensive countries, as ranked by the P/E metric, returned 2.38% on average and only seven out of fifteen were positive. One of the biggest outliers was the U.S. Even with high valuations, the U.S. managed a 14% gain as other countries like Denmark, Mexico and Ireland moved lower.


Global value (a current CLS Investment Theme) won’t work every year — no investment strategy does. But it does tend to work over the long term as mean reversion takes place. So the odds are in its favor over market timers.



Be DOL Ready – Examine Your Product Line Now!

The January issue of The Exchange is online now! This month’s issue highlights Gemini’s EDGE Conference coming up in April, comparing mutual funds to ETFs, examining your product line to be DOL -ready, and more.

Click here to read the January issue of The Exchange!


7115 GFS-1/26/2017


A Terrible Year?

2016 review banner - text in vintage letterpress wood type block with a cup of coffee

Content provided by Kostya Etus, CFA, CLS Portfolio Manager

Let’s review some events that took place over the last year:

  • At the end of 2015, the U.S. Federal Reserve (Fed) hiked rates for the first time in nearly 10 years (the last one was in June 2006).
  • 2016 began with one of the worst market starts in history, and a second correction (loss of more than 10%) in less than six months (the first was in August 2015, and that was the first correction since 2011).
  • About mid-year, Great Britain unexpectedly voted to break away from the European Union (EU), a move termed “Brexit.”
  • Later in the year, a political novice, Donald Trump, was unexpectedly voted as the next president of the United States.
  • To finish off the year, all eyes and ears were on the Fed and expectations were confirmed with a second rate hike.

Considering all of this volatility, you might think financial markets had a terrible year. But take a look at 2016 performance of the most common broad asset classes:


All markets are up! And some by a lot. How can this be with all of 2016’s surprises?

  • The rate increase last year, as well as those expected this year, are actually good signs for the economy as they signal the Fed’s confidence in economic strength. So investors shouldn’t get too worked up about future hikes.
  • Keep in mind, historically the market experiences about one correction every year, so the corrections experienced in 2015 and 2016 are not out of the ordinary.
  • While markets dropped pre-open following the Trump election, they rallied through the end of the year, reaching all-time highs in the U.S.
  • While markets dropped slightly following Brexit, they quickly recovered and volatility reached historically low levels in a matter of weeks.

So now comes the hard part. Coming up with just one reason to add to our “91 Reasons Why People Did NOT Invest in the Stock Market” marketing piece for 2016!



Get Back to Basics with New Training

We have new Orion training opportunities coming to you next week, plus a party for National LINC and a mysterious start to this week's video.

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Data Reconciliation Update: Why Orion Transitioned to the Schwab B/D Core File Layout


Why did Orion make the transition to the new Schwab B/D Core file layouts? Read on to find out how the change affects you.

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Getting Started: How to Become Ascent Certified

ascent certified

It’s easier than ever to become Ascent certified with Orion. Today’s blog takes a deep dive into how the Getting Started Trail benefits your firm.

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The Bright Side of Rising Rates

hands holding tress growing on coins / csr / sustainable development / economic growth







Content provided by Grant Engelbart, CFA, CAIA, CLS Portfolio Manager

Investors have been infatuated with the timing and pace of the Federal Reserve’s (Fed’s) plan to raise interest rates ever since rates were pinned at the zero bound in the midst of the financial crisis. Most of the rhetoric regarding interest rate hikes is negative, after all, who wants to “pay more” for money? These fears for financial assets are overblown, as we have mentioned before. Besides focusing on the negatives, what are some of the benefits of higher interest rates?


Remember when your bank account paid you interest? Slowly but surely, banks are starting to raise the amount they pay customers. Online savings accounts typically have a slower process for moving funds, but those who are willing to accept a little less liquidity can get around 1% in interest. The craziness of celebrating 1% interest aside, it isn’t easy to find products paying 1% with a government guarantee (FDIC insurance) and no principal fluctuation.


Most fears regarding rising interest rates are based on client’s bond holdings (which nearly all investors have, whether they know it or not). We have written extensively on how important bonds are to portfolios and why investors definitely should not abandon them. When investing in bonds – whether through ETFs, mutual funds, or direct bond ownership –there are interest payments and bond maturities that need to be reinvested. Reinvesting these at higher interest rates is beneficial, particularly as the starting interest rate on a bond is often the best predictor of its return.


Interest rates rarely rise in a sustainable way without a prior rise in inflation. The word inflation typically brings memories of the 1980s or stories about the Weimar Republic to mind; however, moderate inflation is typically a sign of a healthy economy. By definition, inflation implies rising prices and wages. The latest jobs report shows wages rising nearly 3% from December 2015 to December 2016, which is currently faster than CPI inflation in the U.S.


Investment vehicles that use derivatives, such as futures contracts, have to collateralize their exposure. This collateral is typically invested in short-term, safe instruments, such as T-bills. Rising interest rates benefit the collateral yield of a futures position. This is particularly beneficial to commodity investments through ETFs, which typically use futures contracts to gain that exposure. Not to mention, commodities are also a hedge against inflation, which as mentioned accompanies rising interest rates.

Interest rates are an integral part of an economic system that affect nearly everyone. Borrowing money at higher interest rates is not preferable, however, the slow expected rise in rates doesn’t have to be detrimental and can actually benefit segments of the economy and population.



Look Inside an Award Winner from Fuse 2016

Look inside our first award winner from Fuse 2016 and read this week's blog on why account aggregation is important for your portfolio accounting system.

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Why Account Aggregation is Important

Adding account aggregation services to your Orion platform is one way to extend your reporting capabilities to clients.

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