April 13, 2016
The first quarter of 2016 was anything but dull. The markets began the year in free-fall as the S&P 500 lost 10.5% during the first six weeks of the year. A major smaller-company index known as the Russell 2000 declined 16% over the same time period. The decline scared a lot of investors and many were probably worried as well. Please note that there are several factors that should give investors some confidence moving forward:
- The decline was closely correlated to the fall in price of oil. Below $30 per barrel, the concern was that many oil producers and service companies would default on their financial obligations. We believe that investors were overly concerned with this possibility, given that oil-field lending by banks represents a small portion of overall lending and is nowhere near the magnitude of the MBS crisis in 2008.
- The inherent structure of the financial plans we have developed at Netzel provide a balanced and diversified approach. Using the endowment model, we have built a good foundation incorporating a variety of assets, including non-traded securities. The foundational assets and the non-traded securities should provide our clients with an excellent base with which to live comfortably.
- As a result of the above approach, any assets allocated to the market are therefore limited to mainly growth capital. This gives investors the opportunity to be patient when the market goes through turbulent periods. Although these assets are liquid and can be readily accessed, they still represent long-term assets with a 3-5 year time horizon.
- With that said, we know that some investors are more comfortable holding assets that are both liquid and defensive in nature. That is why we have developed three strategies for our clients to choose from for your market-related exposure. More details will soon be published on this topic.
Overall, the economy appears to be doing okay! As we’ve noted before, we follow the leading economic indicators closely. The most recent manufacturing survey by ISM showed improvement in March to 51.8. This means that manufacturing grew for the first time since August 2015. A weaker dollar could have had some impact.
We have recently purchased shares of Omega Healthcare (OHI). This company is a REIT that is reasonably-priced and yields 6.5%. The company’s 5-year price appreciation, when combined with its yield, has led to a total return of over 15% annually. We believe a repeat performance is possible. We also were forced to sell the TWM position during the month as the market rallied. The good news is that 10 of our 11 core positions increased in value during the time period we held TWM. We are looking forward to putting more of our clients hard-earned cash to work as the markets appear to have stabilized.
Jim Gentrup, CFA Steve Netzel
Portfolio Manager President
Netzel Financial Netzel Financial
Securities offered through Kalos Capital, Inc. at 11525 Park Woods Circle, Alpharetta, Georgia 30005, (678) 356-1100. Netzel Financial is not affiliated nor a subsidiary of Kalos Capital, Inc. or Kalos Management, Inc. Steven M. Netzel is licensed to solicit and sell securities and advisory services in multiple states. Please contact our office for the list of states. Investment Advisory Services offered through Val Vista Capital Management, a wholly-owned subsidiary of Netzel Financial. Val Vista Capital Management is a Licensed Investment Advisor (RIA) in Arizona. Steven M. Netzel and Jim Gentrup, CFA are both Investment Advisory Representatives (IAR) of Val Vista Capital Management. Netzel Financial, Val Vista Capital Management and Kalos Capital, Inc. do not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance.