22
For Advisor Use Only
January/February
2014
Japanese President Shinzo Abe’s year-end announcement
of a three-pronged plan to reflate and reform the Japanese
economy. At this point, our team began to debate whether
attractive valuations and the new political environment
justified the risk of investing more heavily in economies
that were growing very slowly or still contracting.
At first, the concerns of our more cautious team members
about preserving our clients’ capital overrode our more
aggressive members’ interest in catching a possible market
bottom. But, by May 2013, the team as a whole became
willing to increase our international exposure closer to our
benchmark because of the more attractive valuations in
international stocks compared with U.S. equities and
a reduction in what we saw as tail risk in the asset class.
Currently, valuations in Japan look less compelling than
before, but European stocks remain inexpensive and the
economic picture in that region is improving. We continue
to monitor this area carefully.
A Look into 2014
As these three examples demonstrate, our views on
portfolio allocation and fund selection are constantly
evolving, and we don’t always share the same opinions.
We see this as a competitive advantage, which allows us
to evaluate our investment choices from as many angles
as possible. Still, we make our final decisions as a team.
Of course, these discussions translate into actual asset
movement across our 44 distinct models, with some
affected more or less, depending on their objectives and
exposure to a given asset class. We spend a significant
amount of time determining position sizes, evaluating
the holdings of each portfolio against its individual
benchmark, and ensuring that we are under- or overweight
by an appropriate amount.
Looking into 2014, we expect to carry on our debate
about a variety of topics. In particular, we’ll likely
continue to discuss the REIT asset class and our position
there. Additionally, the emerging market equity asset class
looks set to inspire some discussion. Emerging market
stocks have significantly underperformed developed markets
in 2013—and indeed over the past three years—but
valuations appear increasingly attractive, and we believe
in the long-term growth story. Still, relatively slower
growth in China and the tapering of Federal Reserve asset
purchases could continue to cause short-term headwinds.
Because more than half of you use the PPS Select platform,
we strive to be as transparent as possible about our approach
to investing; we look forward to sharing more insights about
our approach in the future. Our ultimate goal is to free up
your time, allowing you the flexibility to manage existing
clients and to build your client base. If you have questions,
we are more than willing to discuss the rationales behind
our positioning; please don’t hesitate to give us a call.
Past performance is not indicative of future results.
Sean Fullerton is an investment research analyst. He is
available at x9262 or at
Wealth Management
/ Investments & Research
