KCM's Komments


The 4th quarter was another volatile ride with December capping it off with broad negatives affecting all 11 sectors and asset classes worldwide. In stocks, the domestic market was down more as one added midcap and small cap exposure. For the year, the S&P 500 was down about 4.5%, the Russell 3000 was down about 5.25% and an even weighting of S&P 500+400+600 Indices was down almost 8%. Our domestic strategy beat the markets for December and ended the year close to its benchmarks but still negative for the year at just over 6.3%.

Domestic value style stocks zig-zagged all year but came more into favor in 4th quarter as growth style stocks tumbled. Overall, our value stock picking strategy finished the year down just under 6% and ahead of the S&P 500 Value Index (down 7.4%) and the Russell 1000 Value Index (down 8.3%).

Emerging markets’ stocks did better than developed market foreign stocks but still ended the quarter and year in double digit, negative territory and behind domestic stocks. For the year, our strategy was down just over 17.5%.

Real estate indices fell by almost 8% (Dow Jones REIT Index) for the year and just over 7% down for the quarter. Nevertheless, our Real Estate Strategy was about flat for the quarter and up about 2.5% for the year. We successfully bucked the worldwide negative trend in real estate for the year.

DThe fixed income markets (“bonds”) were helped by a slowdown in the number of FED rate increases and removal of its “autopilot” mentality. Almost all bond indices were up for the quarter and year and so was our Fixed Income Strategy.

Our income oriented portfolios continued to generate payouts as planned so clients kept getting the money they needed and expected. Our yield strategy continued to generate about a 7% income yield.


We held little tactical cash cushion for the quarter but did choose not to reinvest some of the proceeds created when we cut small & midcap domestic exposure, as well as China, regional banks, growth style orientation and technology. We expect some more market ups and downs as the trade war concerns evolve and the government shutdown persists. We think two more interest rate hikes will occur in 2019. Computer driven trading strategies have exacerbated market trends and added to volatility. We expect this will continue. We think the FED will be accommodating. Remember, over the long run, remaining fully invested gets the best returns, especially in taxable accounts, even when we are not happy with the short term downward moves. Remember, “unrealized losses” are just that, not real, unless we sell. 2019 should end better than 2018 did. Patience will win.

©2016 Kelly Capital Management, LLC