2019 Q2 Review

by | Aug 13, 2019

“Today’s heresy becomes tomorrow’s orthodoxy.”

– Paul Samuelson

It seems more like a gross understatement when Robert Shiller says, “Economics is not an exact science.” Sure, there are plenty of theories, studies, and lots of data to support the latest prediction model of the latest soon to be great economic guru, but economics doesn’t really have a set of fundamental laws that exist in the large stable environments of true sciences.  Both necessary to be called an exact science.  Physics is an exact science.  Economic models are as close as it gets, and they execute under a series of laws that originate from other sciences.  Economics is the business of prediction, and mostly about predicting human behaviors, either individually or collectively.  The prediction process seems much akin to the lever pulling antics of the Wizard of Oz.  Try one thing and see what happens and if that doesn’t work try something else. But no where in economics will you find anything that remotely resembles the exactness of Newton’s Law of Gravity. We’re now on another frantic pace of lever pulling, looking for short-term solutions that will pacify markets at the risk of jeopardizing long-term outcomes.  In an economy that has been consistent and growing, the masters of money have dramatically changed monetary policy over the past few months for reasons that are not quite clear.  Being data dependent doesn’t seem to be the modus operandi, touted so adamantly for so long.  There’s a new narrative being built around falling consumer confidence and inverted yield curves.  Neither with predictive power being suggested, nor the backing of any laws of science.

Review of 2nd Quarter

May performance was disappointing for our equity holdings, but overall the quarter rebounded to have positive gains.  With the SPX down over 6.5% in May, the month’s negative performance was to be expected.  Only three of the funds we held in SCI experienced a loss greater than the SPX and one of these was comprised mostly of foreign holdings.  Overexposure to bonds in our least aggressive portfolios moderated the sell-off in equities and had surprisingly stable performance throughout the quarter.  A large rally in June recouped most, if not all, of the equity losses we experienced in May.  Bonds also held up and all models showed significant gains for the month. No matter which type of investment you choose, mutual funds, index funds, individual stocks, etc., all have a large exposure to market beta.  This is unavoidable in a long only strategy, but this exposure is more than compensated during market rallies. In July, June’s rally faded, and volatility gained an edge as the month progressed.  Markets are fickle and subject to herding behavior.  Whether it was the Fed becoming unexpectedly submissive to the whims of markets, or market participant apathy, July’s late sell-off set the tone for August and perhaps for the rest of the year.  For the quarter ending July 31st, portfolio outcomes ranged from a 1.39% return on NAV, to a 3.11% return on NAV.

3rd Quarter Re-balance

The re-balance done on August 1st was the result of the consistent and disciplined process we have used since the beginning of Salt Creek Investors (SCI).  Our research and analytics produced eight new funds to our portfolios. Our primary goal each quarter is to produce portfolios consistent with the client’s objectives.  We strive to accomplish this objective by diversifying our exposure to the various factors that exist in fixed income and equity markets. We then select those managers with the best probability of producing alpha and the lowest probability of capturing losses. All this within the context of high exposure to various assigned asset classes. Statistical measures of the new models are similar to last quarter’s numbers. The new quarter has portfolio yields ranging from 1.22% (Aggressive Growth) to 2.75% (Conservative). Expenses are something we continue to monitor and are mindful of the need to keep at a minimum. For the new (3rd) quarter we have expense ratios ranging from 0.43% (Conservative) to 0.80% (Aggressive Growth).   Also worth noting is that this quarter’s re-balance kept most of the best performing funds from the previous quarter (six out of seven).

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The information and descriptions provided about the Program are for educational and information purposes only and should not be used or construed as investment advice, an offer to sell, a solicitation of an offer to buy, a recommendation for any security, or suggest any course of action. LaSalle St. Investment Advisers (“LSIA”) does not guarantee that the information or descriptions supplied about the Program are complete or timely. LSIA makes no warranty with regard to any results obtained from the Program or its deployment. LSIA is not responsible for any direct or incidental loss incurred by relying on information provided about the Program. The allocations presented herein are illustrations and completely hypothetical. None reflect actual investments or investment results and do not reflect allocation of any individual portfolio. Asset allocation and its results vary over time. Other allocations or asset investment categories not offered in the Program may have characteristics similar or superior to those illustrated. Past performance of any model or allocation is no prediction of future results. Neither the Program nor any system/model can predict the future of any market or price movement in a market. Diversification and asset allocation do not guarantee against the risk of investment loss, including risk of loss of principal. Information provided regarding the Program is as of the date of publication and may change at any time without notice. Information has been included which was obtained from third parties and is believed to be reliable and complete. LSIA does not warrant the accuracy or completeness of such information. LSIA is a registered investment advisor and does not provide tax, accounting or legal advice ‒ the information and/or descriptions provided do not constitute such advice. More information regarding LSIA and its investment strategies can be found in the LSIA brochure, ADV Part II, which is available online or through LSIA. Asset allocation may not be suitable for all investors. Before deciding to invest, potential participants should consult with an investment adviser to determine an appropriate investment strategy and methodology which meets the investor’s specific financial needs, objectives, goals, time horizons and risk tolerance. The information and description provided herein has been made without consideration of any investor’s particular suitability for investing in the Program. Asset allocation also involves investment in various asset classes which are not insured by the government. Investing in fixed income and/or high yield securities involves additional concerns including interest rate risk, credit risk and reinvestment rate risk. Investing in securities outside the United States may entail greater risk than investing in domestic U. S. markets. These risks typically include political and economic uncertainty of foreign countries as well as currency exchange fluctuations, including foreign currency exchange rates, political risks, different methods of accounting, financial reporting and foreign taxes. The prospectus accompanying a security should carefully be reviewed before investing. The services described herein are available to persons residing in any state where they would otherwise be contrary to local law or regulation.


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