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

Hacked!

 

2017 Q3 Client Letter

Groupthink

Every day, news outlets report that the computer systems of an organization or a governmental agency have been compromised by nefarious hackers.  In recent memory, Target, Yahoo, Equifax, Facebook, Amazon, Home Depot, UPS, and even the U.S. Securities and Exchange Commission (SEC) have all experienced some level of data breach.  Falcons Rock has now joined the long list of businesses that have been hacked.  We are very security conscious, have used unique and multi-character passwords solely to login to our workstations and the Microsoft Office 365 Exchange Server, have a credible outsourced IT provider that monitors our systems regularly and proactively, have a robust firewall, have installed high quality anti-virus software, and are very careful with client-sensitive information.  After a full scan of all our computers, no malware or viruses were found.  Yet, even with all our precautions, we are apparently as vulnerable as everybody else.

In our case, the “bad guys” pretended they were one of our clients and forwarded email instructions to wire money to a bank account.  The hackers are getting very sophisticated and this would not necessarily have been an unusual request.  Of course, we, as well as Schwab and other custodial firms and banks, have regular procedures in place whereby money cannot be wired simply via an email request.  The fraudulent request was followed by an email sent to about 650 of my contacts, apparently from me, which asked the recipient to open a pdf document that then had a link with a password request.  Clearly, the hackers were phishing for more information.  I spotted this message in my “Sent Mail” folder and it literally disappeared in front of my eyes as I was reading it.  We immediately began working with our IT team to resolve the issue, but it is a frightening experience.

According to an estimate from the World Economic Forum’s 2016 Global Risks Report, cyberspace crimes were expected to cost the global economy over $445 billion.  To put this figure in some perspective, it is greater than the GDP of all but 14 U.S. states, including Wisconsin ($309.54 billion)…and it is greater than the market capitalization of all but five publicly-traded companies, including Facebook, ExxonMobil, and JPMorgan Chase.  Cyber-criminals are becoming more sophisticated by the minute and often tap into presumably bulletproof hosts, such as cloud service providers.  One report refers to Eastern Europe as the “Silicon Valley” of hackers.  Tom Kellermann, Chief Security Officer at cybersecurity vendor Trend Micro, said that “U.S. Corporations have already felt the wrath of patriotic Russian hackers. It’s dramatically escalated ever since we leveraged economic sanctions against Russia.”1 Our IT team said scams similar to ours have picked up this year.

I’m not sure that any of us can really protect ourselves fully from these cyber-attacks.  However, please be vigilant about your personal security.  IT experts suggest doing the following, at a minimum:

  • Use passwords that are more difficult for others to guess, and include letters (both upper and lower case), numbers and symbols.
  • Do not use the same password for multiple sites.
  • Change your passwords frequently.
  • Be sure your anti-virus and anti-malware software is up to date.

Ironically, October is National Cybersecurity Awareness Month.  The recent Equifax breach is estimated to involve the personal information of 143 million Americans.  Because of the increased incidences of cybercrime, attached to this letter is an educational piece, produced by Charles Schwab & Co., Inc., entitled “How to Respond to a Data Breach.”  I would encourage you to read this document and act as appropriate, if you are at all suspicious or concerned that your personal information has been compromised.  I actually went through the process of placing a security freeze on my credit reports from all three major bureaus, as described in this piece.

Given our dependence on technology, it is important that we all do what we can to minimize cybercrime.  In the words of Sergeant Phil from the popular 1980s TV series Hill Street Blues…”Hey, let’s be careful out there.”

2017 Q3 Review

Yet another strong quarter for investment performance!

The U.S. stock market is showing resilience, even in light of stretched valuations. Generally, small cap stocks earned more than large cap stocks and the growth style again outperformed the value style…a continuation of this year’s trend.  The best performing sectors in the S&P 500 Index in Q3 included Technology (+8.6%), Telecom (+6.8%), and Energy (+6.8%).  The worst performing sectors during the quarter included a more defensive sector, Consumer Staples (-1.3%), as well as Consumer Discretionary (+0.8%) and Real Estate (+0.9%).

Non-U.S. stocks, in both developed and emerging markets, continued their resurgence.  During the quarter, the best performing countries included Brazil (+23.0%), Russia (+18.1%), and China (+14.8%).  Countries whose stock markets delivered lower returns for U.S. investors included India (+2.9%) and Japan (+4.1%).  The U.S. Dollar generally fell (again) relative to most other currencies, increasing returns for U.S. investors in international stocks, although the dollar seems to be stabilizing in recent weeks.

The fixed income markets also delivered positive returns for the quarter as lower credit quality bonds led the way, consistent with an optimistic stock market.  Cash (money market funds) yields remained low and steady during the quarter.

Hedging strategies generally delivered positive returns in the third quarter, with the HFRI Composite earning +2.1%.

Here are the returns for select market indices for Q3 and YTD 2017 (as stated in U.S. Dollars):


Responsible Investing Corner

Research indicates that investment strategies that incorporate Environmental, Social and Governance (ESG) criteria can deliver returns similar to, or better than, traditional investments with equal or less risk.  Institutional investment managers that are actively involved in Sustainable, Responsible and Impact (SRI) investing also deliver measurable impact by directly engaging companies on the issues that matter most to their investors.  Generally, we refer to this kind of activity, which includes dialog with management, collaboration with stakeholders and shareholder resolutions, as shareholder advocacy.  Green Century Funds has a long history of successful shareholder advocacy and the following are two excerpts from their recent wrap-up of their work in 2016.

Reducing the Use of Antibiotics in Agriculture

Antibiotic resistance is a global health crisis that kills 23,000 people annually in the United States and is expected to kill 10 million people a year globally by 2050.  The overuse of antibiotics in animal agriculture is a major contributor to this crisis, which is why Green Century is a leading investor engaging companies on reducing the use of antibiotics in animal agriculture. This year, Green Century worked with both Starbucks and Jack in the Box (owner of Qdoba Mexican Eats) to craft and implement policies that eliminate the routine use of medically important antibiotics from the companies’ poultry supply chains by 2020.  These commitments will impact products sold in over 10,000 stores nationwide.

Sustainable Protein

Livestock production is responsible for more than 14.5% of global greenhouse gas emissions – more than the entire transportation sector.  Moving towards more sustainable sources of protein is an important part of combating climate change.  Green Century filed the first ever plant-based protein proposal with Tyson Foods, the second largest poultry company in the world.  Following this proposal, Tyson took an ownership stake in Beyond Meat, a leading plant-based protein company, and has become a proponent of the plant-based industry.

This and That

  • The U.S. stock market (S&P 500 Index) has advanced 272% since the market bottom in March, 2009.  This is the second longest bull market on record.  During the same period, non-U.S. stocks (MSCI All Country World Index ex-U.S.) have gained “only” 117%.2
  • Amazon announced that it is seeking a location for a second corporate headquarters, and it is no surprise that 50 cities have expressed interest in bidding for HQ2.  Moody’s Analytics did an analysis of cities that would be most likely to win the bid, based on Amazon’s stated preferences and relevant economic factors.  According to their analysis, Austin, TX comes in first place, followed by Atlanta and Philadelphia.3
  • Richard Thaler, a Professor at the University of Chicago, Booth School of Business, was recently awarded the Nobel Prize in Economics for his pioneering work in the area of behavioral economics.  This field of study combines psychology and economics, and concludes that human beings do not act rationally when making financial decisions, contrary to the more pure efficient market theory.  In 2016, Michael Lewis wrote an interesting and entertaining book, The Undoing Project, about Daniel Kahneman and Amos Tversky, two psychologists who influenced Thaler’s work.
  • “I arise in the morning torn between a desire to improve the world and a desire to enjoy the world.  This makes it difficult to plan the day.” – E. B. White

Thank you for being a loyal client of Falcons Rock…you make our jobs worth doing!

Greg Wait, President of Falcons Rock

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

1 An inside look at what’s driving the hacking economy, CNBC, February 5, 2016
2 JPMorgan Guide to the Markets, Q4 2017
3 Where Amazon’s Next Headquarters Should Go, Moody’s Analytics, October 12, 2017

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