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

Get quarterly market reviews direct from Falcons Rock President, Greg Wait.

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US SIF Member 2017

Auld Lang Syne

 

2016 Q4 Client Letter

Friends hugging

Happy New Year!  The poem ‘Auld Lang Syne’ was sent to the Scots Musical Museum by Robert Burns in 1788.  Mr. Burns indicated that it was an ancient song, but that he’d been the first to record it on paper.  This song is now part of a wonderful New Year’s Eve tradition and is sung all over the world.  Singing this song with friends arouses feelings of nostalgia and fellowship, as the lyrics roughly translate to “for old times’ sake” and are all about preserving old friendships and looking back over the events of the year.

2016 was quite a year in the financial markets!  It started with some of the worst early-year losses in history for the U.S. stock market and finished with one of the most surprising outcomes of a U.S. presidential election in memory, spurring a strong finish in the market.  In between, citizens in Great Britain voted in favor of a referendum to leave the European Union, which prompted a global sell-off in equities, only to quickly rebound as investors began to realize that it was going to take years for political leaders to negotiate ‘Brexit.’

As we reflect on all of the tumultuous events of 2016, we need to remember that big changes don’t happen quickly.  President-elect Trump and his colleagues have made some bold promises, which may or may not come to fruition, but it will take time to implement big policy changes.  The incoming Administration’s platform positions that could affect our economy, as well as our stock and bond markets, include:  reduced regulation, immigration reform, renegotiated global trade agreements, repeal of the Affordable Care Act, increased infrastructure spending, increased defense spending, cuts to personal taxes, and cuts to corporate taxes.  From an economic perspective, some of these proposed policies would be stimulative and some may cause economic growth to slow.  In general, the combination of increased infrastructure spending (much needed) and tax cuts is likely to be stimulative and inflationary in the near term.  Reducing global trade through more restrictive trade deals and/or tariffs and reducing our labor force via more restrictive immigration policies are also likely to be inflationary and result in a slowing of long-term economic growth.

Since the election, the markets have reacted as if these policies will be implemented, with a moderate rise in U.S. large cap stocks, a steep rise in U.S. small cap stocks (less affected by global trade deals and a rising US Dollar), a decline in non-U.S. stocks and a decline in bond prices.  The bond market is reacting to the possibility of an inflationary environment, which is likely to cause interest rates to rise and depress the market value of bonds.

As always, roughly half the U.S. population is happy with the election results and half is unhappy.  As divided as our country is, we should all remember the message of Auld Lang Syne and hang on to our valued friendships for old times’ sake.  We are more alike than we are unalike!

2016 Review

The fourth quarter demonstrated a fair amount of volatility, with negative returns across most asset classes outside of U.S. stocks.  However, for the calendar year 2016, nearly all equity and fixed income markets finished in positive territory.  The U.S. economy has continued to move forward with final revisions to estimated third quarter GDP growth at 3.5%.  The labor market continued to tighten, helping to reduce the national unemployment rate to 4.6%.  Core consumer prices, which exclude food and energy, climbed 2.1% on a year-over-year basis through November.

All styles and cap ranges in the U.S. stock market finished the quarter in positive territory, with very strong results for the full year. Generally, small cap stocks earned more than large cap stocks and the value style outperformed the growth style.  The best performing sectors in the S&P 500 Index in Q4 included Financials (+21.1%), Energy (+7.3%), and Industrials (+7.2%).  The worst performing sectors during the quarter were Real Estate (-4.4%), Health Care (-4.0%), and Consumer Staples (-2.0%).  For the calendar year, all sectors except Health Care generated positive returns.  Since the market bottom nearly eight years ago (March, 2009), the U.S. large cap stock market is +290.7% and the U.S. small cap stock market is +340.6%!

Non-U.S. stocks, as represented by the MSCI EAFE Index, fell during the quarter (-0.7% in U.S. Dollars), and were slightly positive (+1.0%) for the calendar year.  Over the past year, the best performing countries included Brazil (+37.2% local currency, +66.7% USD) and Russia (+35.2% local currency, +55.9% USD).  Selected countries whose stock markets delivered lower returns for U.S. investors included India (+1.1% local currency, -1.4% USD), the United Kingdom (+19.2% local currency, 0.0% USD), and China (+1.2% local currency, +1.1% USD).  The rising U.S. Dollar generally reduced returns for U.S. investors in developed international stocks, although this was not the case for certain emerging markets stocks.

The bond markets (other than high yield) fell during the quarter as investors sold fixed income securities in anticipation of rising interest rates.  Even with the significant fourth quarter sell-off, most broad bond markets delivered positive returns for the year.  Cash (money market funds) yields have finally started to rise with the most recent increase in the Fed Funds Rate.

Hedging strategies generally delivered positive, but wide-ranging, returns in 2016, driven by a strong fourth quarter.

Here are the returns for select market indices for Q4 and calendar year 2016 (as stated in U.S. dollars):


Responsible Investing Corner

We launched a new online investment advisory service that is fully funded with investment strategies that incorporate Environmental, Social and Governance (ESG) criteria.  Prophecy Impact Investments, LLC (www.prophecyimpact.com) targets investors who want to invest responsibly and prefer an online experience.  We are excited about this new venture, so please help us spread the word!

The 2017 US SIF Trends Report was recently released and indicates that Sustainable, Responsible and Impact (SRI) investing continues to expand.  Total U.S. assets under management using SRI strategies grew to $8.72 trillion, a 33% increase since 2014.  SRI investing now accounts for more than one out of every five dollars under professional management in the United States.1

This and That

  • 78% of global GDP is outside of the United States and 64% of the global stock and bond markets are outside of the U.S.; however, U.S. investors have only 26% of their portfolio in non-U.S. assets.2
  • The U.S. region with the highest likelihood of owning stocks in the Financial sector is the Northeast (+9% over the national average); the West region prefers Technology stocks (+10%); the South region is partial to Energy stocks (+14%); the Midwest region is most fond of Industrial stocks (+11%).3
  • Moody’s Analytics has a Presidential Election Model4 that had successfully predicted 9 of the last 9 Presidential election outcomes, dating back to 1980.  Well, it is now 9 of the last 10 elections…Moody’s got this one wrong just like everyone else!
  • The Green Bay Packers “ran the table” and won the last six games of their regular season.  I was lucky enough to attend their playoff win vs. the New York Giants at Lambeau Field on Sunday.  Go, Pack!
  • Doubt is not a pleasant condition, but certainty is an absurd one.” – Voltaire

The beginning of each New Year is a time to reflect on the past and to look forward to better things to come.  While nobody can be certain about the direction of the economy, the global investment markets, or the ability of any government to deliver on their promises, we can be smart about personal choices we make and we can use discipline with our investments.  I believe that one of the most important services we offer to our clients is the disciplined, research-based, approach to our advice.  We take care of your investment portfolio, so you can spend more time enjoying life!

Thank you for being a client of Falcons Rock.  Our best wishes to you for a happy and healthy 2017!

Greg Wait, President of Falcons Rock

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

1 US SIF Foundation: Biennial Report on US Sustainable, Responsible and Impact Investing Trends - 2016
2 JPMorgan Asset Management: Guide to the Markets – December 31, 2016
3 Openfolio and JPMorgan Asset Management Guide to the Markets – December 31, 2016
4 Moody’s Analytics, www.economy.com – Election Model Update – September 26, 2016

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