Quarterly Update
We hope our letter finds you and your families doing well. We want to thank you again for all of the well wishes during our transition period. We were so pleased to see many of you at our open house, and after a full month in the new space, we are feeling fully settled into our office.
2018 has been an interesting year, not only from a political standpoint but also in terms of the markets. The dominating news of the year has been the upward trend in the US stock market. However, this positive news is primarily derived from an increasingly small group of companies, and doesn’t consider the underperformance in international stocks, both in developed and emerging markets. With interest rates climbing, fixed income markets are down for the year as well. Overall, we see uneven performance when we broaden our vantage point to consider all components of a diversified portfolio.
Today’s US stock market appears to have a trend of increased stratification year-over-year. The top ten companies in the S&P 500 have accounted for 53% of the total return so far in 2018, versus 30% in 2017. We see something similar when looking at emerging market stocks—the ten bottom performers in the MSCI EM index have accounted for 40% of the drop-off in market value. As a result, certain individual companies have a far greater effect on overall market performance, increasing the level of influence just one company can have on a portfolio.
We firmly believe that asset allocation continues to be very important for your portfolio. We aim to balance risk by dividing assets among major categories of the market. Each asset class has a different level of return and risk, so each will behave differently over time. Overall, we are still cautiously optimistic about fundamentals driving markets in the near term, and despite their recent underperformance, we see emerging markets continuing to be supported by attractive valuations and good earnings.
As part of our transition, we hired a firm to help us update our investment policy statement to reflect our market outlook for Horst & Graben. We held four investment committee meetings over the summer and have recently finalized updated versions of our models that better reflect our current thoughts. You may see rebalancing within your accounts soon to reflect this update, so please reach out with any questions.
On another note, we are hoping to use our newsletters to introduce you to the other members of our team. A number of you have probably spoken with Megan Richardson or heard us talk about her. Megan has worked with us for three years now and is an Associate Advisor at the firm. She is a Portland native who graduated with a B.A. in Economics from the University of Portland. She played an integral role in the transition to Horst & Graben and has continued to supervise our day-to-day operations since, in addition to being a second point of contact for clients. We feel very fortunate to have her on our team.
Lastly, as we get closer to the end of the year, we will be reaching out as needed to ensure our clients satisfy all Required Minimum Distributions and to see if we have any opportunities for tax-conscious planning in the last quarter.
As always, we appreciate your trust. Please don’t hesitate to contact us with anything you need, and wish you and yours an enjoyable holiday season.