Exhaustive market research and years of insights rooted in academic and economic foundations.
Our approach combines both passive and active management to capture both the rational and irrational facets of the market. We are grateful for and very proud of the confidence that our clients place in us and in our strategy during series of market cycles and periodic extremes. You may find insightful a look into how our conviction to stay the course dramatically helped returns. We share the following so that you may place in context the thoughts underpinning Wescott’s investment results and recommendations. We also invite you to read our complete History of Our Advice. View the Full History
April 2016: Our look forward for 2016
Since February 11th, the stock market has shed its overhang of fear, but this does not mean that we have seen an end to volatility. It has been encouraging to see a rebound in the asset classes that were most out of favor in 2015 (small companies, energy MLPs, natural resources and the emerging markets). We realize that markets will have periodic pullbacks, and that economies move from expansion to recession. For 2016, we expect more buying opportunities when the market pauses and retreats, but improving economic conditions make a recession unlikely. We are using the first quarter Investment Commentary edition to remind our clients that all is not doom and gloom, and that there are many positive developments that can propel the market…Crowded out by the noise of the political debates and speeches is an inspiring realization that the pace of innovation is accelerating. It has been happening so seamlessly and behind the scenes that we often forget that innovation is affecting our everyday lives.
July 2015: We shared our perspective on the Greek economy and the European Union
We are confident that the euro will survive; the European Union has had more than five years to prepare for the possibility. We do not view a “Grexit” from the euro as a viable solution for Greece, which must import most of what it consumes. A drachma will not be worth much for citizens who reply on imported food, medicine and fuel–who will accept a currency from a bankrupt country? The incentives are strong for both sides to keep the Greek economy from imploding. The Fed had signaled that its first move might be in September, however the situation in Greece may lead it to delay making a move until the fourth quarter. Investors should be prepared for volatility in the bond market for the remainder of the year.
April 2015: Emerging trends we saw in 2015–domestic and global
In 2015, the Millennials surpass the Baby Boomers as our country’s largest living generation, numbering 75.3 million (versus 74.9 Boomers, ages 51 to 69). The Millennials have delayed marriage, home ownership and children. The clock has been ticking, and the oldest of this population are starting to impact the economy. This is a group with a higher burden of student loans than Gen X before them, which may be a near-term barrier to home ownership; the multifamily rental market stands to benefit from Millennials ready to have their own place before they commit to a mortgage. For those who can afford a mortgage, it’s a great time to buy. In Europe, strange things are happening this year. We have entered the Twilight Zone of negative yields (paying to lend money). The trigger was the January announcement of the European Central Bank’s Quantitative Easing (QE) program (which began in March); the ECB plans to buy €60 billion per month through September 2016 and Mario Draghi indicated that he is willing to buy bonds that pay negative interest rates. On January 15th, the Swiss Central Bank started a series of rate and currency gyrations by removing support for the euro relative to the franc, and lowering its key interest rate from -0.25% to -0.75%. Denmark followed by cutting rates it pays on Certificates of Deposits from -0.05% to -0.20% (charging customers for keeping their money on deposit) and also cut its key interest rate to -0.75% (paying borrowers to borrow). This is the most bizarre period we have ever witnessed in the fixed income markets.
October 2014: We shared our outlook about the post-crisis recovery
The market seems fixated on the inevitable slowing in the Chinese economy, while ignoring the pace of growth in India that has picked up speed in 2014. India’s new Prime Minister Narendra Modi is reform-minded, and his impact is already being felt with the second quarter GDP annual growth rate of 5.7%, an improvement over 4.6% in the first quarter. Within several years, India is projected to have a higher growth rate than China, and has many years of catching up to do in terms of infrastructure, particularly for energy. When you consider the large number of the emerging middle class in these two countries, growth rates in single digits result in very large numbers. Fear has pervaded the start of the fourth quarter. Concerns that were overlooked or ignored during the year suddenly became daunting. We agree that there are risks and a great deal of uncertainty. The market needs to periodically pause to correct imbalances in pricing, and sometimes the sell-offs escalate to a panicked frenzy on no new information. Investors should always be cautious as well as prepared to take advantage of panicked selling that makes prices too compelling to ignore.
January 2013: We shared our perspective on Treasury Inflation Adjusted Securities (TIPS)
TIPS offer some of the best examples of negative real yields accepted at auctions in 2012, since the demand for them has far exceeded the available supply. Every TIPS Note (mature in 10 years and less) auction in 2012 executed at negative yields; the three TIPS Bond (mature in more than 10 years) auctions resulted in yields of less than 1%.
June 2012: Our perspective on the 2012 presidential election
Investing based on politics and election cycles has its risks. We can never predict the countervailing forces that will affect a president’s term and how Congress will respond to the challenges it faces. Our best advice about the election is to vote for the candidate(s) you believe will serve us best, and to invest as a political agnostic. The challenges we face in this country seem daunting. There is little that either presidential candidate can do without the cooperation of Congress. This will be a very interesting election, however, the outcome will not change the need to maintain a long-term focus in looking for attractively valued companies. It has been our experience that strategies that try to be ahead of tax rate changes and/or election results can backfire.
October 2009: We weighed in about the bumpy economic recovery
Situations during which panic overtakes fundamentals provide highly unusual and lucrative opportunities. We think the chances are very good for a three-to-five-year recovery period if clients maintain a long-term asset allocation policy. A sudden reduction in equity exposure makes the recovery period longer, as less of the portfolio is exposed to the recovering asset classes.
December 2007: We provided perspective on the housing market crash of 2007
For the bond market, we need to see a return of the risk premium. It is a dangerous web that was woven by mortgage companies, investment banks, brokerage firms, ratings agencies and others. Investors in bonds have relied on ratings companies, and ratings companies have relied upon models that understated the risk of putting together a pool of risky bonds. In 2008, there will be much loss taken by those who should have known better.
December 2006: We voiced our concerns about the bond market before the 2008–2009 financial crisis
We continue to believe that the bond market has poor fundamentals, with prices higher than they deserve to be, and market interest rates lower than they should be. The market has priced in everything good that can happen for bonds, and has ignored the hazards, much like equity investors did with technology stocks in late 1999. We maintain allocations to short-term bonds as a source of liquidity reserves and are focused on protecting principal. Our focus is on maintaining the target levels of cash flow desired by our clients, which we are able to accomplish without yield-motivated strategies that involve hidden risks.
July 2006: Our thoughts on market volatility
Risk and volatility are often confused. Admittedly, periods of high volatility are the most unsettling for investors… The recent turmoil in the global markets prompted fear-based selling and investment opportunities for those who know how to discern values… Our conviction to invest in areas of the market that are underperforming, and to invest in non-U.S. companies helped to reduce our clients’ overall portfolio volatility during the extreme swings of the past 10 years… Risks cannot be eliminated, but many risks can be managed.