Although the bear market narrative is popular according to some market pundits, our analysis based on a 93 year history of bull and bear markets suggests otherwise…..Over the [past …] weeks there have been encouraging signs of a sustainable market low. Lowry’s Institutional Market Trend Analysis
Where are We, at the End of Q4 2018 and for the Year 2018?
The months of October and December were very ugly. However, the precipitous drop in Q4 (S&P 500 down approximately 14%) is very much in line with other drops during this bull market (Q2 2010 and Q3 2011, and even fall 2015, for example). The point here is that these drops happen suddenly, and recovery typically happens within next quarter or so. In contrast, a bear market entails a lot of build-up, experiences a deeper decline and requires more time to recover. The bear market of 2008 followed approximately 1 year of gradual declines and lower peaks.
After only 2 weeks of the new year, we already seeing very encouraging signs of recovery and healthy 2019 YTD returns.
I’ve stated on many occasions that it’s very difficult to avoid market corrections such as we’ve just experienced. My goal has always been to defend against the 2008 type bear market, to the greatest extent I can. Nevertheless, I have been formulating some strategies that MAY prove useful in defending against a market correction like what we’ve just experienced. I will be communicating with you on this subject.
For the calendar year, most of you experienced a decline in the range of 5%, plus or minus.
The World of Fixed Income
During Q4, when we really needed our fixed return funds to make money and help offset the decline in stocks, they mostly made very little or lost something. This is disturbing and demonstrates the increasing correlation that exists between the asset classes. Obviously, we want steady, reliable income along with steady, reliable principal values. Today’s volatile, rising interest rate environment makes this difficult to find.
I have been studying two new new fixed income opportunities, one of which I will touch upon here: the Blackstone Real Estate Income Trust (BREIT). Blackstone is very large, and I consider their track record to be impressive. They manage $457 billion of real estate, including $120 billion investor capital. During the last 2 years, BREIT has achieved a very desirable outcome for fixed income investors: a high single digit return with very little volatility. The downside that you need to be aware of is they require a minimum 1 year hold time; cashing out principal in the first year carries a 5% penalty. I will be speaking with clients about this product (not available inside of Fidelity 401K plans).
How Did the Markets and our Funds Do in the 4th Quarter and for the Year 2018?
All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns, for Q4 and 2018:
| Q4 2018 | Year 2018 | |||
| S&P 500 | -13.47% | -6.24% | ||
| Nasdaq (technology) | -17.54% | -3.88% | ||
| Dow | -11.83% | -5.63% | ||
| NYSE Composite | -13.06% | -11.20% | ||
| Russell 2000 (small co) | -20.51% | -12.18% | ||
| US Aggregate Bond Index | 1.64% | 0.01% | ||
| ONEQ | -17.34% | Fidelity Nasdaq | Fidelity commission free ETF | -3.17% |
| IJR | -25.97% | iShares Small-Cap | Fidelity commission free ETF | -8.49% |
| FENY | -25.92% | Fidelity Energy | Fidelity commission free ETF | -19.98% |
| FTEC | -17.93% | Fidelity Info Tech | Fidelity commission free ETF | -0.37% |
| FDIS | -15.45% | Fidelity Discretionary | Fidelity commission free ETF | -0.87% |
| FHLC | -10.68% | Fidelity MSCI Healthcare | Fidelity commission free ETF | 5.53% |
| FBIOX | -22.31% | Fidelity Biotech | stock mutual fund | -10.73% |
| FSMEX | -13.79% | Fidelity Medical Equipment | stock mutual fund | 16.20% |
| FCNTX | -16.24% | Fidelity Contra Fund | stock mutual fund | -2.13% |
| FBGRX | -16.00% | Fidelity Blue Chip Growth | stock mutual fund | 1.07% |
| PSGAX | -11.61% | Virtus KAR Small-Cap Gr | stock mutual fund | 8.81% |
| FKDNX | -17.18% | Franklin Dynatech | stock mutual fund | 2.80% |
| CFRAX | -3.12% | Catalyst floating rate | fixed income mutual fund | 0.46% |
| EIFAX | -4.13% | Eaton Vance floating rate | fixed income mutual fund | 0.26% |
| FFRAX | -3.35% | Fidelity floating rate | fixed income mutual fund | -0.13% |
| GIREX | 0.26% | Griffin real estate int rate | fixed income mutual fund | 4.68% |
| RNDLX | -1.97% | RiverNorth Strategic | fixed income mutual fund | -1.53% |
| FAGIX | -7.95% | Fidelity Capital & Income | fixed income mutual fund | -5.79% |
| LENDX | 0.84% | Stone Ridge Alternative | peer to peer fixed return m.f. | 5.08% |
| Prime Meridian Small Bus LP | 0.39% | 1 month lag | private peer to peer fixed return | 6.60% |
| Prime Meridian Real Estate LP | 0.64% | 1 month lag | private peer to peer fixed return | 7.93% |
| KIP, Kay Income Partners LP | 0.56% | private mortgage fund | 6.75% |
Your investment return(s) for Q4 was/were as follows:
Your investment return(s) for the entire year 2018 was/were as follows:
We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.
Best,