Core Thesis: reasonable US economic progress but increased global volatility
- BACKDROP: Likely modest 2-3%+ economic expansion. Possible upside from slow European recovery.’ Oil prices helping to keep US inflation and interest rate in check. Interest rates could still rise 1% by the end of 2015 but we expect few rate surprises. Smaller, domestically-focused companies will do better than larger companies competing in world markets with an expensive dollar making their goods more expensive.
- STRATEGY: Remain substantially invested and diversified but consider taking opportunities to prune more fragile non-core positions. We remain confident in the potential of categories that lagged in 2014
- STOCKS: Stay substantially invested through experienced fund managers with reasonable costs
- Long term: US domestic equity rally remains in play although volatility will increase
- Core: Equal-weight value/smaller firms with growth strategies and quality larger large cyclicals and out of favor industries such as energy for the long term.
- Longer term themes: Liquid alternatives to reduce volatility and global emerging markets opportunities
- INCOME(Bonds): Focus on more nimble, multi-sector income strategies utilizing credit, REITS, high dividend stocks and select closed-end funds trading at a discount
- Short term, rates may stay range-bound. But, when they do move it may be dramatic.
- THEMES: Focus on long term value and higher quality; maintain emerging market exposure for risk-tolerant clients. Reduce US large cap stock exposure favoring large European stocks.