KCM's Komments

JULY 2019
MARKETS AND RESULTS—





This quarter saw a leadership reversal from small and midcap stocks to large caps. As of the quarter’s end, the S&P 500 Index {Large cap} was up 3.3%, the S&P 400 Index {Mid cap} was up 1.5% and the S&P 600 Index {Small cap} was up 0.4%. Emerging Market stocks were up until mid-April when they fell well below US stocks and stayed there ending the quarter down -0.7%. Real Estate, which had been the real winner in 1st quarter fell behind US stocks in mid-May, moved back in front by June 26th then got gutted and ended the quarter up only 0.5%. Bonds bounced around but generally benefitted from the FED’s inaction on interest rate increases. The best maturity range for the quarter was in 7 to 10 year debt. It was up 3.8%. The aggregate bond market index was up 2.7% and short-term Treasuries were up only 0.8% for the quarter. On balance, exposure to foreign stocks hurt while exposure to domestic stocks, selective bonds and real estate helped.

Our strategies did well relative to their objectives and benchmarks. Our Large Cap Value stock picking strategy ended the quarter up about 4.7% versus its benchmark up 2.7%. Our general domestic equity strategy {All Cap Multi Style} was up just ahead of an equal weighted mix of the S&P 500, S&P 400 and S&P 600 Indices. Our Emerging Market strategy finished behind its benchmark due to our exposure to three specific Asian countries: China, Taiwan and South Korea. Our fixed income {Bond} strategy tended to benefit from investors’ moves toward bonds we held and it ended up just over 2% versus its benchmark up 1.4%. Our Yield strategy finished up over 2.5% and also sported a yield of 7.1% so clients needing income continued to get what they expected in payouts plus some growth in portfolio value. Our Real Estate strategy did very well finishing just over 3% versus its benchmark at just under 1%. Interestingly, our investment in Extra Space Storage has grown by over 1,000% since we first bought it. Let’s hear it for the late George Carlin who first said “you gotta have a place to put your stuff….”

GOING FORWARD

We think the FED will remain accommodative in 2019 and continue good vigilance to avoid inflation getting out of hand or an economic recession. Fear of the current inverted yield curve is overdone. The FED has learned from the past and we don’t think the current inverted yield curve is a signal that recession is coming nor do we see a meaningful need to reduce rates. Our bet is a static interest rate environment going into the 1st half of 2020.

Overall, we are fully invested and expect to remain so unless shooting starts with Iran. We think the China trade issue will be resolved before the 2020 election year starts so for now in our Emerging Markets Strategy we are staying invested in China, South Korea and Taiwan.


©2016 Kelly Capital Management, LLC