KCM's Komments

MARCH 2019
MARKETS AND RESULTS—





January was marked by strong market responses to the prior quarter’s big moves down. February and March tended to rebound and for the quarter, all index benchmarks and all our strategy models were up. Our clients made money regardless of market volatility, cash reserves held and asset classes involved. It was a good quarter for our clients!

For the quarter, our real estate strategy was the leader at almost 17% return, followed by our yield strategy at just over 11% (with annual income of over 7%), domestic large cap value stocks were 3rd at almost 10.5%, domestic all cap multi-style strategy was 4th place at almost 10.4%, emerging markets finished up about 6.5% and fixed income was up about 2.5%. When we adjust our emerging markets strategy return for the cash position held therein during the quarter, we finished even with its benchmarks. On balance, decisions we made with respect to security sales, model restructuring and redeployment of cash helped our clients make money in the quarter without enduring massive up and down movement in portfolio values. Also, clients requiring recurrent cash payouts and those with IRA required minimum distributions got their money on time and in full without incurring lots of trades to cover. Given that 1st quarter is also 2018 tax reporting season, our tactical approach used in 2018 kept client taxes on taxable accounts’ realized gains low.

GOING FORWARD

The volatility we experienced in 4th quarter of 2018 and January of 2019 was engendered by a number of events. Some have yet to fully play out and some may reappear or persist for all of 2019. Examples of bad events included trade tensions with China (which could persist for all of 2019), worldwide economic slowdowns that could negatively affect the USA economy, fear of a USA recession (which we don’t believe will occur in 2019) and potential interest rate increases (which we feel are unlikely in 2019). On balance, the forecasts we have previously made about a more conservative FED have been borne out and we think the FED will remain accommodative in 2019 and continue good vigilance to avoid inflation getting out of hand.

Fear of the current inverted yield curve is overdone. We are not in the high inflation rate environment where inverting the yield curve was needed to deflate an inflated economy. The FED has learned from the past and we don’t think the inverted curve is a signal that recession is coming.

Overall, we are fully invested except for our emerging markets strategy in which we hold about 30% cash. We shall watch the China trade issue. When it is resolved, we shall invest accordingly. We also have removed the floating rate debt investments previously held in our various fixed income strategies as we think interest rate increases will not occur in 2019 so the benefit of holding floating rate debt is gone. On balance, we are, and shall remain, in a fully invested state as appropriate in all but the emerging market strategy until economic events define changes are appropriate.


©2016 Kelly Capital Management, LLC