Q1 2017 Investment Commentary
Paritas Global Wealth Strategy (GWS) was developed to be a portfolio that delivers an intuitive, common sense approach to investing. The primary goals of GWS are to protect capital during negative periods and capitalize during growth periods.
Our proprietary risk-based “all-weather” approach helps produce consistent return streams over various market cycles. By systematically rebalancing using risk metrics each month, the portfolio can adapt to changing market conditions to achieve the expected outcomes we are targeting.
The Bottom Line
|1Q17||2016||1 Year||Since Inception1|
Preliminary estimate. Inception date: 7/1/15. 1Annualized.
The performance results of GWS for the first quarter, as well as since inception, were in line with our expectations and the strategy’s blended benchmark index. Despite the geo-political headlines that dominated the news, the broader capital markets environment was unusually quiet in terms of its volatility. In fact, the S&P 500 Index experienced the lowest volatility since 1967 (50 years) as measured by the average daily swing of 0.32% during the 1st quarter.2
2Banerji, Gunjan. “The Quietest Quarter for the Dow Jones Industrial Average in 51 Years.” The Wall Street Journal. Dow Jones & Company, 31 Mar. 2017. Web. 4 Apr. 2017.
Reallocating Capital to Balance Risk
|Asset Class||Beginning of Quarter||End of Quarter||Change|
The GWS portfolio exposure to fixed income was well below 40% as a result of the muted risk environment for global equity markets. This demonstrates the added value of being unconstrained relative to a static 60/40 balanced portfolio. Throughout the quarter, we systematically reduced our fixed income allocation to capitalize on rising global equity markets during this period of historically low volatility.
Market Recap – Q1 2017
Source: FactSet. As of 3/31/17. See disclosures for index definitions.
Non-US equity markets were the best performing segments of the GWS portfolio during the first quarter. International Developed markets rallied strongly to reverse their relative underperformance in calendar year 2016. Emerging Markets continued the past year’s rally, gaining an additional 11.43%. US Mid and Small-Caps produced modest gains after recording strong absolute returns in 2016. Despite the rising interest rate environment, fixed income and other inflation-hedging assets all turned in positive absolute returns for the quarter.
What Helped/Hurt GWS
Source: FactSet. Contribution of Return calculated for Q1 2017 and is as of 3/31/17.
Q1 2017 was an unusual quarter where each asset segment made a positive contribution to the portfolio. The strong performance of non-US equities contributed the most to GWS’s returns by more than double that of the US equity allocation (2.06% vs. the 0.81%). The defensive equity holdings were the third most important contributor followed by US large and mid cap equities. The broad diversification of holdings in the GWS portfolio helps to mitigate risk and is designed to provide smoother returns over time with significant capital preservation benefits.
Broad Market Returns
US Equities – Russell 3000 Total Return
International Equities – MSCI ACWI (x-us) Net Return
Fixed Income – Bloomberg Barclays US Aggregate
MLPs – Alerian MLP Total Return
REITs – Wilshire US REIT Total Return
THIS DOCUMENT HAS BEEN PREPARED BY PARITAS CAPITAL MANAGEMENT, LLC (“PARITAS”) SOLELY FOR THE PURPOSES OF PROVIDING SUMMARY INFORMATION REGARDING PARITAS AND ITS GLOBAL WEALTH STRATEGY (“GWS”) COMPOSITE. THE INFORMATION CONTAINED HEREIN IS NOT, AND SHOULD NOT BE CONSTRUED, AS AN OFFER OR SOLICITATION OF AN OFFER TO BUY ANY FINANCIAL INSTRUMENT. AN INVESTMENT IN ACCORDANCE WITH THE GWS COMPOSITE DESCRIBED HEREIN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”), ANY STATE SECURITIES COMMISSION, OR OTHER ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OR THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND A CRIMINAL OFFENSE.
ANY REPRODUCTION, DISTRIBUTION, OR OTHER UNAUTHORIZED USE OF THIS DOCUMENT, AS A WHOLE OR IN PART, OR THE DISCLOSURE OF THE CONTENTS HEREOF, OTHER THAN TO THE RECIPIENTS FINANCIAL, TAX AND/OR LEGAL ADVISORS WITHOUT THE PRIOR WRITTEN CONSENT OF PARITAS IS PROHIBITED.
THE BENCHMARK INDEX REFERRED TO HEREIN IS A BLEND OF 60% MSCI ACWI INDEX AND 40% BARCLAYS US AGGREGATE BOND INDEX. THE INDICES INCLUDED TO SHOW RELATIVE MARKET PERFORMANCE FOR THE PERIODS INDICATED AND ARE NOT NECESSARILY STANDARDS OF COMPARISON, SINCE INDICES ARE UNMANAGED, BROADLY BASED AND DIFFER IN NUMEROUS RESPECTS FROM THE GWS COMPOSITE. MARKET INDEX INFORMATION WAS COMPILED FROM SOURCES THAT PARITAS BELIEVES TO BE RELIABLE. HOWEVER, PARITAS DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH DATA.
AN INVESTMENT IN ACCORDANCE WITH THE GWS COMPOSITE MAY NOT BE SUITABLE FOR ALL INVESTORS. THIS MATERIAL HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT INTENDED TO PROVIDE, AND SHOULD NOT BE RELIED ON FOR, INVESTMENT, ACCOUNTING, LEGAL OR TAX ADVICE.
INVESTING INVOLVES RISK, INCLUDING THE POTENTIAL OF LOSS OF SOME OR ALL PRINCIPAL INVESTED. INTERESTED PARTIES ARE ENCOURAGED TO REVIEW PARITAS’ FORM ADV PART 2, AS WELL AS PERTINENT PROSPECTUS/PRODUCT DESCRIPTIONS TO CONSIDER SUCH RISK PRIOR TO INVESTING. THERE IS NO GUARANTEE THAT A DIVERSIFIED PORTFOLIO WILL ENHANCE OVERALL RETURNS OR OUTPERFORM A NON-DIVERSIFIED PORTFOLIO. DIVERSIFICATION DOES NOT PROTECT AGAINST MARKET RISK. STOCK INVESTING INVOLVES RISK INCLUDING LOSS OF PRINCIPAL. PAST PERFORMANCE IS NO GUARANTEE OR PROMISE OF FUTURE SUCCESS.
A PRO FORMA 0.60% MANAGEMENT FEE WAS APPLIED TO THE GROSS PERFORMANCE OF THE GWS COMPOSITE TO ARRIVE AT NET PERFORMANCE.
THE SHARES OF EXCHANGE-TRADED FUNDS (“ETFS”) MAY TRADE AT PRICES AT, BELOW, OR ABOVE THEIR MOST RECENT NET ASSET VALUE. EQUITY SECURITIES WILL FLUCTUATE IN PRICE; THE VALUE OF INVESTMENTS IN ACCORDANCE WITH THE GWS COMPOSITE WILL THUS FLUCTUATE, AND THIS MAY RESULT IN A LOSS. SECURITIES IN CERTAIN FOREIGN COUNTRIES MAY BE LESS LIQUID, MORE VOLATILE, AND LESS SUBJECT TO GOVERNMENTAL SUPERVISION THAN IN THE UNITED STATES. THE VALUES OF THESE SECURITIES MAY BE AFFECTED BY CHANGES IN CURRENCY RATES, APPLICATION OF A COUNTRY’S SPECIFIC TAX LAWS, CHANGES IN GOVERNMENT ADMINISTRATION, AND ECONOMIC AND MONETARY POLICY. EMERGING MARKET SECURITIES CARRY SPECIAL RISKS, SUCH AS LESS DEVELOPED OR LESS EFFICIENT TRADING MARKETS, A LACK OF COMPANY INFORMATION, AND DIFFERING AUDITING AND LEGAL STANDARDS.
AN INVESTMENT IN BONDS CARRIES RISK. IF INTEREST RATES RISE, BOND PRICES USUALLY DECLINE. THE LONGER A BOND’S MATURITY, THE GREATER THE IMPACT A CHANGE IN INTEREST RATES CAN HAVE ON ITS PRICE. SELLING A BOND BEFORE IT REACHES ITS MATURITY MAY RESULT IN A LOSS UPON ITS SALE. BONDS ALSO CARRY THE RISK OF DEFAULT, WHICH IS THE RISK THAT THE ISSUER IS UNABLE TO MAKE FURTHER INCOME AND PRINCIPAL PAYMENTS. OTHER RISKS, INCLUDING INFLATION RISK, CALL RISK, AND PRE-PAYMENT RISK, ALSO APPLY. HIGH YIELD SECURITIES (ALSO REFERRED TO AS “JUNK BONDS”) INHERENTLY HAVE A HIGHER DEGREE OF MARKET RISK, DEFAULT RISK, AND CREDIT RISK.
PARITAS CAPITAL MANAGEMENT, LLC IS A REGISTERED INVESTMENT ADVISOR WITH THE STATES OF CALIFORNIA, CONNECTICUT, MASSACHUSETTS, NEW JERSEY, NEW YORK, PENNSYLVANIA, AND TEXAS.