Q2 2017 Investment Commentary
Paritas Global Wealth Strategy (GWS), was developed as a portfolio that delivers an intuitive, common sense approach to investing. The primary goals of GWS are to protect capital during periods of declining markets while capitalizing during market appreciation periods.Our proprietary balanced risk portfolio utilizes an “all-weather” approach to increase the probability of producing consistent return streams over various market cycles. By systematically rebalancing using the risk metrics we analyze each month, the portfolio can adapt to changing market conditions to achieve the type of positive outcomes we are targeting over market cycles.
Balanced Risk Across 4 Major Asset Classes
The Bottom Line
|2Q17||2017 YTD||2016||1 Year||Since Inception1|
Preliminary estimate. Inception date: 7/1/15. 1Annualized.
During the second quarter, GWS produced positive absolute returns of more than 2.00% both gross and net of fees. Although the GWS composite slightly trailed its benchmark, we are pleased since we achieved our objective of capturing most of the upside while protecting capital from potential losses.Capital markets continued to advance although at a slower pace. Strong global equity markets provided the primary momentum. Since the inception of GWS, our well-diversified portfolio has kept pace with its benchmark and delivered results in line with our expectations.
Reallocating Capital to Balance Risk
|Asset Class||April 2017||May 2017||June 2017|
Risk in the second quarter remained muted. This past quarter was notable for the low levels of stock market volatility, continuing the trend we saw in the first quarter.We are taking advantage of this extremely low volatility environment; GWS has consistently been below a 35% fixed income allocation since November 2016. The exposure to international equities increased modestly across both developed and emerging markets. Inflation hedging positions fluctuated during the quarter, but ended the period lower with a lower capital allocation.
Market Recap – Q2 2017
With geo-political headlines dominating the news, the major market indices forged ahead to set new all-time highs during the quarter. International equity markets were the best performing segments of the GWS portfolio during the second quarter. Developed markets finished up 5.84% for the quarter and emerging markets gained 4.33%. Larger-cap US stocks outperformed both small and mid-cap stocks in the US.The yield on the 10-year US Treasury declined approx. 10 basis points during the quarter to finish at 2.30%, helping to boost fixed income returns into positive territory. MLPs significantly underperformed all other portfolio segments by declining -6.59% during the quarter.
Source: FactSet. As of 6/30/17. See disclosures for index definitions.
What Helped/Hurt GWS This Quarter
All of GWS’ asset class segments made positive contributions for the 2nd quarter except for MLP’s. Developed international equities were the biggest contributor while MLPs were the biggest detractor. Defensive Equities, which includes Consumer Staples, Health Care, and Utilities, were the second largest contributor during the quarter adding 0.41% to the overall portfolio return. Combined with its fellow Inflation Hedge, REITs, it more than offset the detraction from MLPs producing a positive return for that asset class.Balancing the risk in a portfolio aims to ensure that no single asset class segment can have too big a positive or negative impact on the portfolio. By focusing on minimizing losses, GWS is expected to maximize wealth-building over the course of up/down market cycles.
Source: FactSet. Contribution of Return calculated for Q2 2017 and is as of 6/30/17.
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 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.