Good News – Your Stocks Are Leading The Market Higher!
In this update we want to share some themes and the good news about your stock portfolio since the new bull market began in earnest in the fall of 2016. As you know, markets fell into a mild bear market in 2015-16 and bottomed this past July. Throughout the difficult period of market decline we remained defensive to protect your portfolio from the possibility of further decline. However, before the election we switched to full growth mode and have since been hitting on all cylinders.
As we have discussed in our Strategy Updates, we shifted from a defensive posture to a more growth posture in September and October and we believe that we are in the very early stage of a multiple year bull market, with the expectation of normal corrections along the way. Since the beginning of the new bull market in stocks (October 31st, 2016) Main Street client’s stocks have advanced, after fees, as well as or better than just about any stock index.* Most of this performance comes from our aggressive reinvestment of your portfolio prior to the election, but it can also be attributed to the sector exposure and specific companies that you now own. (*If you have restricted certain industries or stocks or have concentrated positions, your portfolio performance may vary slightly.)
Stock Allocation – Full Speed Ahead!
As opposed to our defensive strategy during the earnings recession in 2015-16, we now have your portfolio at the high end of your stock exposure range and we believe that this strategy will be well rewarded during this bull market.
Sector Allocation – Economically Sensitive!
Unless you have instructed us otherwise, we are heavily invested in the economic sectors that tend to perform best in a bull market: your portfolio is over weighted in Consumer Discretionary, Energy, Financials, Industrial, Materials and Technology stocks – fortunately these are the sectors that are leading markets higher since the election and will likely continue their leadership throughout this year.
Stock Selection – Fast Growing Companies!
Our change to a more growth oriented strategy has uncovered very high quality and fast growing companies – both big and small. Your stocks are involved in fast growing businesses which include companies such as online retail, banking, wireless, social media and the Cloud. They also include old line infrastructure companies that will be rewarded by government spending in the coming years.
Foreign Exposure – Limited!
Though we invest globally, we are still somewhat underweight foreign exposure given the instability in most foreign economies and possible trade complications posed by President Trump.
We are looking forward to a profitable year and it appears that our stocks are off to a great start. Of course there is always the risk that our optimistic outlook could be de-railed by a number of risks which include political policy, Federal Reserve policy and corporate profitability just to name a few. In this spirit, we will remain flexible in our approach to your portfolio’s allocation to stocks, your sector exposure and the use of carefully placed stop loss orders to mitigate the risk of catastrophic decline.
We hope you find this good news and short update helpful. If you have experienced a significant change in your financial circumstances or would like to meet or discuss your portfolio, please let us know at your convenience. As always, if you have any friends or colleagues who you feel may benefit from our services, we would be happy to introduce ourselves to them with a no-obligation introductory meeting.
Your Team at Main Street Research