Category: Investing


A Perfectly Natural, Normal Thing

Content provided by Kostya Etus, CFA, Portfolio Manager To quote someone that I’ve learned quite a bit from, you and I are a perfectly natural, normal thing. Perfectly natural. — Jim Levenstein, American Wedding (2003) We knew the historically low levels of volatility couldn’t last forever. It wasn’t normal and bound to end. We experienced...

2017 Markets in Review: Cryptoassets, Market Highs, and Value vs Growth

Content provided by Mark Matthews, Investment Research Analyst While short on market volatility, 2017 suffered no shortage of excitement. Major U.S. indices went on a tear with both the S&P 500 and Dow Jones Industrial Average (DJIA) setting all-time record highs. However, the biggest theme of 2017 was the breakout year in cryptoassets. Cryptoassets took...

Three Surprising Facts About Risk Budgeting

Content provided by Case Eichenberger, CIMA, Client Portfolio Manager Risk management through Risk Budgeting is at the heart of what we do at CLS. We discuss it often in our commentary to remind investors of our philosophy and of risk in general. A recent study by Factset shows fewer than half of high-net-worth investors fully...

Bitcoin Bubble About to Burst? Not So Fast!

Content provided by Michael Hadden, Junior Research Analyst For every social media darling claiming to have struck it rich with Bitcoin, there’s a prominent investor calling it a fraud or bubble, see here and/or here. You’d probably want to trust Warren Buffett over @MrMoneyBags on Twitter, right? As the College Football Analyst, Lee Corso, likes...

Keeping Up With Millennials

Content provided by Kostya Etus, CFA, Portfolio Manager Financial advisors and investment managers are trying to crack the code on what millennial investors are looking for and how to help them save for retirement. Here are a few insights from a millennial point of view on dealing with this evolutionary generation. Keeping Up With Technological...

Our Latest Thinking on Regional Positioning in Portfolios

Content provided by Paula Wieck, CFA, Portfolio Manager  At CLS, we are constantly reviewing all asset classes for changes in the market environment.  We monitor relative valuations, technical and behavioral indicators (such as moving averages and investor sentiment), quality fundamentals, macroeconomic data, and quantitative data such as various risk metrics, costs, and so forth. Although...

CLS Investments: Q&A with Edward Rosenberg, American Century – Part 2

Joseph Smith, CFA, CLS Senior Market Strategist and Edward Rosenberg, Senior Vice President and Head of ETF American Century Investments continue to discuss the world of ETFs. Smith asks Rosenberg about the “race to zero” and if the price of ETFs really matters.

Bitcoin: What Is It Good For?

Content provided by Mark Matthews, Investment Research Analyst A Commodity? An Equity? Bitcoin continues to reach new highs, closing at $7,058 per share on November 2, 2017. But for many investors, bitcoin remains somewhat of a mystery. So, what is this highly popular digital currency, and why is it continuing on such a tear? Bitcoin...

ETF Expense Ratios: More Than Meets the Eye

Content provided by Grant Engelbart, CFA, CAIA, Portfolio Manager We’ve all got our pet peeves and soap boxes. For most people they have to do with human behavior. But for me, my biggest pet peeve is the constant attention to ETF expense ratios! The fee war has gotten out of control. I’m actually surprised there...

Five Reasons to Keep Expectations Low for Market Returns

Content provided by Kostya Etus, CFA, Portfolio Manager

“The light that burns twice as bright burns half as long, and you have burned so very, very brightly, Roy.” – Eldon Tyrell, Blade Runner (1982)

As regular readers of the CLS blog may know, I love watching movies. But, I am often disappointed with great movies because I hype them up in my mind to unreachable expectations. A recent example is “The Big Sick”. It was a great movie, but the stellar reviews and high praise from trusted colleagues elevated my expectations, and I ended up disappointed.

The markets are no different. Investors often have high expectations for market returns, which often lead to disappointment when the market doesn’t deliver. These expectations are elevated by the same forces driving those of movies — colleagues discussing their successes, sensational media headlines, and analyst and economist forecasts (similar to critics’ movie reviews). In addition, as bull markets heat up, expectations rise. Then, any type of negative market action may cause an unwarranted investor reaction — for example, selling investments in a panic as they hit bottom.

At CLS, we believe a bear market is unlikely because there are no signs of an economic recession. Global economic growth is stable and strengthening in many countries, and corporate earnings have rebounded in 2017 after several years of weakness. But, we do foresee below-average returns in the near future for the following reasons.

  1. U.S. stock market valuations are at record highs, which suggest a higher probability of reversion to the mean and weaker performance ahead.
  2. Since 1929, the U.S. market has never experienced a full year with such a small maximum drawdown as we have had in 2017 (see chart below).
  3. This is the first year since 1970 that the U.S. market has not had a single monthly negative total return.
  4. The U.S. market hit its sixth consecutive high in September. That’s the longest streak in 20 years. Meanwhile, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which measures expected stock swings, fell to an all-time low, passing the last record set in 1993.
  5. The Dow has set 69 new records for closing highs since the 2016 presidential election. And, it has reached four 1,000-point milestones in one year for the first time ever.

All of these statistics suggest this is not the time to get comfortable. Markets are cyclical in nature and a reversal of direction may come sooner than later. This is why it is important to stress a balanced and globally diversified approach to investing that focuses on targeting risk based on both ability and willingness to take it on. Such an approach will help moderate expectations and help investors stay invested for the long run.

I took my own advice for the recent premiere of the much-anticipated “Blade Runner 2049”. I was excited about it, but I stayed away from trailers and reviews and kept my expectations reasonable. I thoroughly enjoyed it.