Transcript portfolio commentary - Cary Street Partners

QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
ECONOMIC & MARKET OVERVIEW
ECONOMY
The U.S. economy expanded more than previously thought in the first three months of 2016, but
underlying trends would suggest it remained vulnerable in the face of global economic turmoil. Gross
Domestic Product grew at a seasonally adjusted annual rate of 1.1% in the first quarter, the weakest pace
in a year. This was higher than the previous estimate of 0.8%. The upward revision was due to the U.S.
exporting more goods and services than previously thought. Moreover, companies spent more than
initially estimated on software as well as research and development.
But otherwise, the economy would appear to have lost steam as it entered its eighth year of expansion.
Total business investment fell by the most in six years as the energy sector continued to suffer from
depressed oil markets. Spending by U.S. consumers grew at the slowest pace in two years.
Headwinds included the fallout from the U.K.’s vote to leave the European Union and a strong dollar tied
to investor jitters about the global economy. Greater uncertainty about the prospect for global growth and
increased financial market volatility today could make U.S. businesses more cautious in hiring and
investing, and could make consumers less willing to spend, both of which would weigh on growth.
The Federal Reserve was debating whether to raise interest rates. It had indicated earlier this year that it
could move this summer, but the likelihood of an interest rate increase has diminished due to fears that the
vote in the U.K. and slower job growth in the U.S. might weigh on the overall economy.
FINANCIAL MARKETS
US equity markets pushed higher in the quarter, generally posting consistent gains in each month. Markets
faced some turbulence right at quarter’s end as investors attempted to surmise the consequences of
“Brexit” on global markets. The S&P 500 Index had managed to return to near record levels at 2100 prior
to the British vote. Following the vote to exit the Index dropped to 2000, but recovered in the following
days to close the quarter at 2099. Yet again, a short term shock to the market was met with a perceived
buying opportunity. Despite many indications of investor anxiety and complacency, investors have shown
remarkable resilience each time the risk markets have dropped in recent years.
So far 2016 has continued to see more bouts of market volatility and investors have shown greater
appreciation for Value stocks in general. Nonetheless, the first half of the year has been challenging in
attempting to add value through asset allocation as many portfolio diversification strategies have trailed
the broad benchmarks. Developed international stocks and domestic small-cap stocks have lagged results
from the S&P 500 for the year, although mid cap stocks and emerging markets stocks have seen some
relative improvement. Volatile interest rates and currencies continued to challenge investment managers in
the bond markets and many international bonds entered the unknown territory of negative interest rates.
The information and views contained on this page were prepared and compiled by Capital Market Consultants,
Inc. The material has been prepared and is distributed solely for informational purposes, is not a research report
(as such term is defined by applicable law and regulations), and is not a solicitation, recommendation or an offer
to buy or sell any security or instrument or to participate in any trading strategy. The information contained
herein was obtained from sources we believe to be reliable but there are no guarantees.
QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
PORTFOLIO COMMENTARY
Portfolio Performance:
All CSP Models finished the second quarter of 2016 with positive returns for both the year and quarter.
Our All Equity Model performed most strongly in the beginning of the quarter, but gave back returns
in final week with the aftermath of the Brexit vote. The Bond Model’s relative performance was
inverse of the Equity Model – it performed best at the end of the quarter as a risk off trade drove up the
price of core assets.
Equities:
The June 23rd vote for Britain to leave the EU was an unexpected shock to the market, and drove down
most stocks. One exception was utilities, which were up over 2% for the last week of the quarter. Our
performance was aided by solid relative performance from our MFS International Value fund. Equity
Model returns were also boosted by our exposure to small and midcaps, which outperformed large cap
stocks for the quarter.
Our bias towards growth in the large cap space was a detractor for the quarter, as value outperformed.
The biggest absolute gains in global markets came from deep value sectors such as Energy, Telecom
and Utilities as oil bounced back and investors looked for safety against a backdrop of global political
and economic uncertainty.
Fixed Income:
Our fixed income positions did well for the quarter. We have been building a position in relatively
stable, core holdings, which is exactly what investors wanted during the market turmoil. One weak
spot was an overweight to US Dollar, which gave back some of its gains versus other currencies in the
quarter. Amidst global uncertainty, investors clamored specifically for long duration Sovereigns, even
willing to accept negative interest rates.
Global credit also did well. Fortunately, our fixed income exposure within the models is overweight
credit, allowing the models to make up for the underweight to international and duration.
We remain pleased with the absolute returns and risk control being provided by our fixed income
allocations. We do not believe chasing returns from long duration bonds in countries with negative
interest rates is prudent for our clients, and probably adds risk instead of reducing it. The primary
function of the fixed income portfolio is risk control. Consequently, we have positioned the fixed
income portfolio with moderate duration and enough high quality credit exposure to produce
reasonable returns without exposing our clients to undue currency, credit or interest rate risk.
*Net performance reflects the maximum allowable annual fee of 1% (100 basis points). The multi-manager portfolios above
reflect the hypothetical performance of Cary Street Partners model portfolios comprised with a combination of mutual funds
over various time periods. The returns reflect changes made in the models since inception. However, these figures do not reflect
the performance of an actual account or a group of actual accounts. Past performance is no guarantee of future results.
Prospectus available upon request.
QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
PERFORMANCE DETAILS (as of 6/30/2016)
Trailing Performance (Gross)
3 Month
YTD
1 Year
2 Year
3 Year
5 Year
Inception
(11/1/09)
Expense
Ratio
CSP All Equity
0.7
1.4
-1.0
1.8
7.6
7.5
9.9
0.79
CSP 80-20
1.1
1.8
-0.1
2.0
7.0
6.3
8.6
0.72
CSP 70-30
1.2
2.2
0.4
2.2
6.9
6.4
8.3
0.69
CSP 60-40
1.4
2.5
0.9
2.4
6.3
6.0
7.9
0.65
CSP 50-50
1.6
2.8
1.6
2.5
5.8
6.3
7.6
0.59
CSP 30-70
2.1
4.7
3.8
3.4
na
na
na
0.55
CSP Bond Alt
2.5
4.8
3.2
2.2
2.9
2.4
3.8
0.44
MSCI ACWI NR USD
1.0
1.2
-3.7
-1.5
6.0
5.4
7.6
Barclays Global Aggregate TR USD
2.9
9.0
8.9
0.6
2.8
1.8
2.6
3 Month
YTD
1 Year
2 Year
3 Year
5 Year
Inception
(11/1/09)
Expense
Ratio
CSP All Equity net 1%
0.5
0.9
-2.0
0.8
6.5
6.4
8.8
0.79
CSP 80-20 net 1%
0.8
1.3
-1.1
1.0
6.0
5.3
7.5
0.72
CSP 70-30 net 1%
1.0
1.7
-0.6
1.2
5.8
5.3
7.2
0.69
CSP 60-40 net 1%
1.2
2.0
-0.1
1.4
5.3
4.9
6.8
0.65
CSP 50-50 net 1%
1.3
2.3
0.5
1.5
4.8
5.3
6.6
0.59
CSP 30-70 net 1%
1.8
4.2
2.8
2.4
na
na
na
0.55
CSP Bond Alt net 1%
2.2
4.3
2.2
1.2
1.8
1.4
2.7
0.44
MSCI ACWI NR USD
1.0
1.2
-3.7
-1.5
6.0
5.4
7.6
Barclays Global Aggregate TR USD
2.9
9.0
8.9
0.6
2.8
1.8
2.6
Model
Trailing Performance (Net 1%)
Model
*Net performance reflects the maximum allowable annual fee of 1% (100 basis points). The multi-manager portfolios above
reflect the hypothetical performance of Cary Street Partners model portfolios comprised with a combination of mutual funds
over various time periods. The returns reflect changes made in the models since inception. However, these figures do not reflect
the performance of an actual account or a group of actual accounts. Past performance is no guarantee of future results.
Prospectus available upon request.
QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
PERFORMANCE DETAILS (as of 6/30/2016)
Calendar Year Performance (Gross)
Model
YTD
2015
2014
2013
2012
2011
CSP All Equity
1.4
0.7
6.1
26.8
15.6
-4.1
CSP 80-20
1.8
0.9
6.0
20.8
13.0
-3.7
CSP 70-30
2.2
0.8
6.2
18.8
12.6
-3.3
CSP 60-40
2.5
0.8
5.5
14.9
13.1
-1.1
CSP 50-50
2.8
1.0
5.1
14.1
13.0
0.6
CSP 30-70
4.7
1.0
na
na
na
na
CSP Bond Alt
4.8
-0.3
1.8
1.2
9.1
-1.7
MSCI ACWI NR USD
1.2
-2.4
4.2
22.8
16.1
-7.3
Barclays Global Aggregate TR USD
9.0
-3.2
0.6
-2.6
4.3
5.6
Calendar Year Performance (Net 1%)
Model
YTD
2015
2014
2013
2012
2011
CSP All Equity net 1%
0.9
-0.3
5.0
25.5
14.4
-5.0
CSP 80-20 net 1%
1.3
-0.2
4.9
19.6
11.9
-4.7
CSP 70-30 net 1%
1.7
-0.2
5.1
17.6
11.5
-4.2
CSP 60-40 net 1%
2.0
-0.2
4.5
13.8
12.0
-2.1
CSP 50-50 net 1%
2.3
0.0
4.1
12.9
11.9
-0.4
CSP 30-70 net 1%
4.2
0.0
na
na
na
na
CSP Bond Alt net 1%
4.3
-1.2
0.8
0.2
8.0
-2.6
MSCI ACWI NR USD
1.2
-2.4
4.2
22.8
16.1
-7.3
Barclays Global Aggregate TR USD
9.0
-3.2
0.6
-2.6
4.3
5.6
*Net performance reflects the maximum allowable annual fee of 1% (100 basis points). The multi-manager portfolios above
reflect the hypothetical performance of Cary Street Partners model portfolios comprised with a combination of mutual funds
over various time periods. The returns reflect changes made in the models since inception. However, these figures do not reflect
the performance of an actual account or a group of actual accounts. Past performance is no guarantee of future results.
Prospectus available upon request.
QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
ALLOCATION DETAILS
Models Last Changed on 2/29/2016
All Equity 80/20
Category
Symbol
Large Value
JVLIX
70/30
60/40
50/50
30/70 Bond Alt
Fund
JHancock Disciplined Value I
7%
6%
5%
4%
4%
SunAmerica Focused Div
8%
7%
6%
6%
6%
6%
FMIHX
FMI Large Cap
8%
8%
8%
6%
6%
6%
JMUEX
JPMorgan US Equity Instl
7%
6%
5%
5%
4%
4%
POGRX
PRIMECAP Odyssey Growth
7%
6%
5%
5%
4%
TRBCX
T.Rowe Blue Chip Growth
8%
7%
6%
5%
5%
4%
Mid Value
MCVIX
MFS Midcap Value
8%
6%
5%
4%
Mid Core
PCBIX
Principal MidCap Institutional
8%
5%
4%
3%
4%
3%
FDSWX
Large Core
Large Growth
Mid Growth
Small Value
Small Core
TFSSX
TFS Small Cap
0%
0%
0%
0%
0%
VTMSX
Vanguard Tax-Mngd Small Cap Adm
4%
3%
3%
3%
4%
Small Growth
PRDSX
T.Rowe Diversified Sm Cap Growth
5%
4%
3%
3%
0%
Intl Value
ARTKX
Artisan International Value Investor
9%
7%
6%
5%
4%
3%
Intl Core
MINIX
MFS International Value
10%
8%
7%
6%
5%
4%
Intl Growth
OIGYX
Oppenheimer International Growth Y
10%
7%
7%
5%
4%
Fixed - Core
WACPX
PIMIX
OPBYX
MWTIX
VBILX
4%
3%
4%
4%
4%
5%
4%
5%
6%
6%
7%
4%
8%
8%
8%
9%
5%
10%
10%
10%
13%
7%
14%
14%
14%
16%
11%
20%
20%
20%
3%
4%
5%
7%
12%
0%
0%
0%
0%
0%
1%
1%
1%
1%
1%
1%
1%
100%
100%
100%
100%
100%
100%
100%
Western Asset Core Plus Bond I
PIMCO Income Instl
Oppenheimer Core Bond Y
MetWest Total Return Bond I
Vanguard Interm Bond Idx Adm
Fixed - High Yield
Fixed - InternationalOIBYX
Oppenheimer International Bond Y
Fixed - Inflation
PRRIX
Fixed - Short
PTLDX
PIMCO Low Duration Instl
LDLFX
Lord Abbett Short Duration Income F
Fixed - Tactical
ANGIX
Angel Oak Multi-Strategy Income Instl
Alternatives
TFSMX
TFS Market Neutral
Cash
FSMXX
Goldman Sachs FS Money Market FST
TOTAL
Dark Green is a NEW position
PIMCO Real Return Instl
Light Green is an INCREASED position
Red is a DECREASED position
The multi-manager portfolios above reflect the hypothetical performance of Cary Street Partners model portfolios comprised
with a combination of mutual funds over various time periods. The returns reflect changes made in the models since inception.
However, these figures do not reflect the performance of an actual account or a group of actual accounts. Past performance is no
guarantee of future results. Prospectus available upon request.
QUARTERLY UPDATE – 2nd Quarter 2016
CSP Portfolio Strategies
DISCLOSURE
Cary Street Partners Holdings, LLC is a limited liability holding company that owns 100% of Cary Street Partners LLC, a
registered broker-dealer and a member of FINRA and SIPC, and 100% of Cary Street Partners Investment Advisory
LLC, a federally registered investment advisor. Cary Street Partners is the trade name used by two separate,
registered firms providing security brokerage, insurance, and investment advisory services. Products may not be
available in all jurisdictions. Please review the Cary Street Partners advisory disclosure document for a full description
of our services. Also, a copy of the Investment Advisor’s ADV Part II is available upon request.
Past performance is not indicative of future results. This material has been prepared or is distributed solely for
information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any
trading strategy.
The price of small company stocks are generally more volatile than large company stocks.
Stocks may fluctuate in value and are subject to more risk than bonds or money market instruments. Shares, when
redeemed, may be worth more or less than their original cost.
Bonds, if held to maturity, provide a fixed rate of return and a fixed principle value. Bonds will fluctuate and shares,
when redeemed, may be worth more or less than their original cost. Bond prices are sensitive to interest rate
changes and a rise in interest rates will cause the prices of current bonds to decline. Longer term bonds typically are
more sensitive to interest changes than shorter-term bonds.
Investing in fixed income securities involves certain risks, such as market risk if sold prior to maturity and credit risk,
especially if investing in high-yield bonds, which have lower ratings and are subject to greater volatility. All fixed
income investments may be worth less than original cost upon redemption or maturity. Income from municipal
securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest
income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the
federal alternative minimum tax (AMT).
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency
fluctuations, political and economic suitability, and different accounting standards. This may result in greater share
price volatility. Investment focused on certain geographical regions increases the vulnerability to developments in
that region. This may result in greater share price volatility.
Exposure to the commodities markets may subject an investment to greater share price volatility than an investment
in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors
including changes in supply and demand relationships, weather and acts of nature, agricultural conditions,
international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and
economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity.
Products that invest in commodities may employ complex strategies which may expose investors to additional risks,
including futures roll yield risk.
Indices are unmanaged and cannot be purchased directly by investors. Index-performance is shown for illustrative
purposes only and does not predict or depict the performance of an investment.
All mutual funds available by prospectus. Contact your Financial Advisor for a copy of the
most recent prospectus.