I am by no means a Trekkie so excuse me if I use this line out of context...
"To Boldly Go Where No Man Has Gone Before" seems to be a very suitable way to describe what has worked so far in 2016. Honestly, the traditional way of investing has worked OK this year. A traditional 60/40 "Balanced" fund or model is doing OK. Of course, returns vary depending on which one you look at. I will pick on 2 well known and widely held funds...Fidelity Puritan Fund (FPURX) and Janus Balanced Fund (JABAX). The 2 funds combined hold more than $38 Billion dollars! Year to date the funds have generated pre-tax, gross returns of 4.73% and 2.35% respectively*. OK? According to Morningstar the benchmark for this category is "Allocation--50% to 70% Equity". For the same period, the benchmark return is 5.90%. OK?
Now, here is the point of this article...Implementing a more tactical strategy that has taken advantage of some modernized investment vehicles has improved the bottom line. At RAA, we have had success implementing strategies including a number of different "unexplored territories" like Smart Beta funds, Sector Funds, Convertible Bonds, Preferred Stocks, and Real Estate Investment Trusts. All have been a net positive so far this year. Here's one specific example: In January during the complete washout in the market, we took a position in an energy fund. We felt that the selling had been far too extreme and if we were willing to hold onto the investment for a while it would pay off. Last week our targets were hit and we exited our position in energy with an approximate gain of 20%.
Looking forward, we expect more of the same with a backdrop of volatility, elevated geopolitical risks and uncertainty. Also, with more than 70% of the bonds in developed-market (foreign) government bond indexes today having yields of 1% or lower, we see a continued appetite for US bonds which should act as a backstop for rising rates regardless of what the Fed does. Lastly, inflation may begin to rear its head if the recent jobs report and GDP estimates hold true. That all being said, we plan to continue an active approach with a focus on quality, lower cost and risk reduction.
