History Has Steered Folks to Environmental, Social and Governance Investing.
In this Milwaukee Journal Sentinel article from July 15th, Tom Saler explores socially responsible investing (SRI) and breaks down some recent high-profile examples.
Read July article.

 

New Firm Targets Socially Responsible Investors.
In this article from January 9th, Milwaukee Journal Sentinel reporter Kathleen Gallagher explores Greg Wait's launch of a new company that combines socially responsible investing and online investment advice.
Read January article.

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's October 17th article, Kathleen Gallagher and Greg Wait discuss the recent rise of environmental, social and governance, or ESG investing. Greg provides insight into how reduced risk and improved returns are causing money managers to include ESG investing in their portfolios. Read October article.

 

Responsible Investing: Creating Financial and Non-Financial Value by Greg Wait. Do investors sacrifice returns in pursuit of their goal of advocating for a better world in which to live?
Learn more.

 

Ten-Year History of Investment Manager Performance by Greg Wait. As part of our process, we have conducted investment manager research and due diligence resulting in manager or fund recommendations to our clients. Here are our findings.

 

The month of September, 2013 marked the 10-year anniversary of Falcons Rock serving our clients and building relationships. We are grateful for all the years of friendship, loyalty, and support, and look forward to our next decade!

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's July 20th article, Kathleen Gallagher and Greg Wait discuss the rising U.S. Treasury rates and using duration as a measure of risk. Greg's comments relate to whether we'll be "looking back on this short-term increase in yields as the warning shot for the much-anticipated longer-term rise in interest rates." Read July article.

 

Dec 9, 2012, Journal Sentinel's Kathleen Gallagher interviewed Greg Wait on current Investment Trends. Read the full article: "Low-quality stocks continue to provide strong returns."

 

We've Grown! Meet our new investment consultant: Tony Sebranek.

 

Investment Trends column of Milwaukee Journal-Sentinel shows Top-Down investment strategies are achieving positive results.
Read article on Top-Down Investing

 

Additional articles in the Milwaukee Journal Sentinel featuring Falcons Rock:
One is a fascinating story about a Mequon drug development company, which has a few of our clients as private investors.
Read article about our angel investors

 

Another features us in the Market Trends column: Strategy targets uncertain economy - and how Falcons Rock confronts specter of slow growth.
Read how we help clients get ready

 

There is a great deal of debate in the investment industry regarding active vs. passive (indexing) investment management.  We researched this topic and the results might be surprising to you.  Please see our research paper on this subject...more

 

We have experienced interesting situations with our clients. To update you on our firm’s activities, check out examples of recent work we have done for our clients...more

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US SIF Member 2017

Independence

 

2016 Q2 Client Letter

Brexit

Last weekend, we celebrated the “Fourth of July” here in the United States, and honored those who adopted the Declaration of Independence declaring that the thirteen American colonies had become a new nation, and were no longer part of the British Empire…the original Brexit! While we face many challenges in this country, it has served as the model of freedom and economic prosperity for the rest of the world. We should all be greatly appreciative of the efforts of our founding fathers.

On June 23rd, British voters surprised the world by approving a proposal to abandon the European Union after being a member for 43 years. I wrote about the ramifications of the Brexit vote in a special correspondence to clients on June 27th, citing increased volatility in the global stock markets and significant depreciation of the British pound. So far, the tightening of financial conditions has been orderly and volatility has tapered, with few signs that market functioning has deteriorated. However, conditions can change quickly as investors are a fickle bunch (like voters)!

It seems to be part of the human spirit to desire independence. The British vote was part of nationalist/populist movement that appears to be spreading among people of many countries, including the U.S…a potentially dangerous situation. While people seek independence, we are stronger when united together. Our 50 states are stronger and safer as a union; Great Britain, Wales, Scotland and Northern Ireland are stronger as a union; the UK is stronger in union with other European markets. Pulling together people of diverse backgrounds and experiences makes us better equipped to handle a variety of situations, as long as we are all open-minded to work together and respect each other.

Given that the Brexit vote was a non-binding referendum, there are many possible outcomes. According to Rob Lovelace of the Capital Group, the key point to remember is that “this referendum is the beginning of a process, it’s not the end. The market has interpreted this as a bimodal event and it isn’t.1” The referendum simply starts a two-year negotiation process with the EU. In the meantime, European trade will not cease to exist. The UK is the second-largest economy in Europe and businesses will generally continue to operate normally. It is possible that the EU and Great Britain will learn some lessons from this controversy and adjust their fiscal policies and trade agreements in a way that makes them each stronger. In the end, London is one of the most influential business hubs in the world and will likely remain so going forward.

We all value and appreciate our independence, yet we must respect the power of community, diversity and unity. Here’s hoping that the UK and EU can work together to continue their recent history of peaceful cooperation.

Market Review

Each of the first two quarters of 2016 demonstrated extreme volatility, yet most asset classes remain in positive territory year-to-date. The stock market returns over the first six weeks of 2016 were the worst on record to start a calendar year, but the markets recovered by the end of the quarter. Global markets were roiled in the second quarter by the uncertainties caused by the Brexit vote, but have stabilized since.

All styles and cap ranges in the U.S. stock market finished the quarter in positive territory. Generally, small-mid cap stocks earned more than large cap stocks and the value style outperformed the growth style, bucking the general trend since the last recession. The best performing sectors in the S&P 500 Index in Q2 included Energy (+11.6%), Telecom (+7.1%), Utilities (+6.8%) and Health Care (+6.3%). The worst performing sectors during the quarter were Technology (-2.8%) and Consumer Discretionary (-0.9%).

The Brexit vote pushed the U.S. Dollar higher against most foreign currencies. Non-U.S. stocks, as represented by the MSCI EAFE Index, produced relatively small losses for the quarter (-1.2% in U.S. Dollars, -0.5% in local currencies). This quarter’s best performing countries included Brazil (+13.9%), Russia (+4.2%), and India (+3.7%). Selected countries whose stock markets delivered the worst returns (USD) included Germany (-5.0%), France (-3.5%) and the U.K. (-0.7%).

The bond markets generated positive returns, as investors’ fears following Brexit resulted into flows to U.S. Treasuries and Municipals. Cash (money market funds) continue to earn next-to-nothing as the Fed Funds Rate remains accommodative.

Most balanced portfolios again experienced small gains during the quarter. Real estate and commodity/oil prices soared, but early indications are that alternative strategies had mixed results.

Here are the returns for select market indices for Q2 2016 (as stated in U.S. dollars):


Responsible Investing Corner

The CRA Qualified Investment Fund, managed by Community Capital Management, is a great example of an “impact” investment that has delivered a market rate of return. This fund invests in high credit quality fixed income securities whose proceeds are designed to positively impact communities throughout the United States. Community Capital Management has its roots in the Community Reinvestment Act (CRA) of 1977, which is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, and opened this fund in 1999. Investors can target specific geographies or impact themes, such as: affordable housing, affordable healthcare, education and child welfare, environmental sustainability, healthy communities, enterprise development, disaster recovery, or redevelopment of blighted communities.

As of 12/31/2015, the CRA Fund has invested over $5.8 billion in environmental, social and governance (ESG) investments on behalf of its shareholders, generating results that make a powerful impact2:

  • 309,000 affordable rental housing units
  • 13,200 home mortgages for low- and moderate-income borrowers
  • $216 million in enterprise development/job creation
  • $188 million in economic development (i.e., environmentally sustainable initiatives and neighborhood revitalization activities)
  • $670 million in statewide homeownership and down payment assistance
  • $28 million in affordable healthcare/rehabilitation

The Fund’s investment philosophy seeks to generate above-average, risk-adjusted returns with lower volatility and lower credit risk than the broad bond index…and it has achieved this goal over most time periods since inception. A recent investment example is City Market at O Street in Washington, DC, which is a one million square foot mixed-use development in the historic Shaw neighborhood. The development includes over 200 residential apartments and condominium units, a 182-unit hotel, a supermarket, a two-story below-grade parking garage, a 270 linear rooftop dog park and market retail space. Included in the project is The Hodge of 7th; an affordable housing residence for active adults older than 55 where 72 of the 90 units are restricted to residents with incomes at or below 60% of area median income. The remaining 18 units are restricted to residents with incomes at or below 50% of area median income. City Market at O Street is considered a key component in the revitalization of the Shaw neighborhood, one of Washington’s oldest commercial, residential and cultural districts. The project is targeting a LEED Silver certification and compliance with Green Communities criteria.3 This project would cross a variety of impact objectives, including affordable housing, environmental sustainability, small business development and job creation/retention.

Please let me know if you would like more information about the CRA Qualified Fund.

This and That

  • While Real Median Household Incomes have been essentially flat since 1984, Real Disposable Personal Income Per Capita (DPI) has been steadily rising over the same period, and is currently growing at a 3.6% annual rate.4 DPI is an after-tax measure that is an indicator of the amount of money households have available for spending and saving after income taxes. Historically low income and capital gains tax rates have been helpful during this period.
  • The U.S. comprises only 4% of the world’s population, yet produces 22% of the world’s economic activity (GDP). On a per person basis, the American worker produces about 40% more than the typical European. Unemployment in the Eurozone is twice as high as the U.S. and economic growth is about half the U.S. rate. Some would consider us Americans to be “economic hypochondriacs!”5
  • Moody’s Analytics has completed an assessment of the macroeconomic consequences of presidential candidate Donald Trump’s proposed economic policies. While complicated by their lack of specificity, his proposals would result in a lengthy recession, larger federal government deficits and a heavier debt load. By the end of his presidency, there would be close to 3.5 million fewer jobs and the unemployment rate would increase to as high as 7%. The average American household’s after-inflation income will stagnate, and stock prices and home values would decline.6
  • “Most economists believe that immigration has an overall salutary effect on the U.S. economy. An influx of labor from abroad increases the domestic workforce, allowing the economy to expand. Low-cost labor benefits consumers by keeping prices of many goods and services low. And gifted immigrants invent new products and found new businesses – think Sergey Brin of Google and Elon Musk of Tesla Motors.” – The Federal Reserve Bank of Minneapolis

There is plenty of uncertainty to go around these days. Fallout from the Brexit vote, and an upcoming U.S. presidential election between two candidates that each have a negative overall rating among Americans, will likely result in continued market volatility throughout the rest of this year. As Lou Piniella, former major league baseball manager, once said “You have to learn how to get comfortable with being uncomfortable.” We are here to help. As a privately-owned, fee-for-service investment consulting/advisory firm, we enjoy our independence from Wall Street and the big banks. We are free to conduct our own research and analysis, and provide advice that is solely in the best interests of our clients. The staff at Falcons Rock is united in our commitment to serving you in a personal way, with customized and diversified investment strategies that are designed to achieve your goals with as little risk as possible.

Thank you for the trust you’ve placed with Falcons Rock.

Greg Wait, President of Falcons Rock

Gregory D. Wait, President
Falcons Rock Investment Counsel, LLC

1 Capital Ideas – June 24, 2016
2 CRA Qualified Fund Fact Sheet – Q4 2015
3 Community Capital Management 2015 Annual Impact Report
4 US Bureau of Census, US Bureau of Economic Analysis
5 Atlanta Capital Opinion and Analysis of Key Economic Issues – April 12, 2016
6 Moody’s Analytics – The Macroeconomic Consequences of Mr. Trump’s Economic Policies – June 2016

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