Mid Year Update
We’re now nearly halfway through 2016 and the new team is approaching its 1 year anniversary. The results so far are very encouraging.
In the past year:
Most importantly, we are beginning to see outperformance across all portfolio models. CIO Jason Draut Ph.D. has made noteworthy tactical decisions since coming on board that have resulted in client portfolios outperforming in equities, bonds and commodities.
The increased expertise from pro traders Chris Sheehy and John Conti has refined our already robust options hedging strategies. Adding their brainpower has also allowed us to introduce several new proprietary options strategies. One is designed to increase income for retirees making monthly withdrawals and the other is an “absolute return” strategy that has potential to boost performance in both up and down markets.
Our office manager Jacob Mandel has settled in and I am receiving rave reviews on his handling of client services. He has streamlined the paperless onboarding process and made life much easier for clients both old and new.
We have added numerous new services in response to the needs of our growing client base:
· A relationship with a private equity real estate firm offering fixed and variable rate returns.
· Banking relationships with specialty lenders that can provide favorable rates for refinance and mortgage loans.
· Formed a relationship that allows our clients access to “collateralized loans”. These loans allow investors to borrow money against their current investments, leaving those investments intact while providing access capital at favorable rates.
· In addition we’ve added enterprise level software upgrades to our CRM and portfolio management, client portal and account aggregating software.
Our progress is being noticed in the marketplace. We grew by 91% in 2015 and the growth has continued apace so far in 2016. The engine of growth continues to be referrals from existing clients – and for that we are very grateful.
We’ve made a ton of progress toward our goal of providing our clients with an outstanding investing experience. We’ve done a lot but we have a lot more planned. Thank you for your continued trust and we look forward to the rest of 2016 and beyond.
The Big Short...
Many of you out there may have seen the new movie based on the Michael Lewis book of the same name. I think it did a wonderful job of explaining very complex structures and concepts in terms that allowed people to at least have a glimmer of what transpired. Some of you may have wondered how/if any of the things that happened in the movie relate to what we at Wynn Capital try do in stewarding your wealth so I’ll do my best to explain.
Firstly, Wynn Capital is not a hedge-fund. A hedge-fund uses investors’ capital to place bets on specific strategies that they feel the rest of the market participants are miss-pricing. In other words, they feel they have some special insight that will allow them to take advantage of an opportunity the rest of us do not see. This is essentially the approach the 3 protagonist firms took in the movie. They bet big – very big – that the housing market was a giant Ponzi scheme that would come crashing down and they eventually, after a long, gut-wrenching ride, were proven correct. While hedge-funds were initially intended to be uncorrelated to the overall market (hence, the “hedge” in hedge-fund) when they first came into being, many of them no longer fit that description and are very much correlated and/or levered to the hilt.
We at Wynn Capital differ in some important ways and our approach could be viewed as similar in others. We are a pure fiduciary Registered Investment Advisor and our one goal is to protect and grow your wealth. We do not speculate with your capital. We take the view that very few people/companies can beat the market on a consistent basis. We know and understand that in a very intimate way from our years as professional traders and we have the “marks” (more emotional than physical!) to prove it. Instead, we let the market do what it is going to do. The market doesn’t care about your opinion, our opinion, or even Warren Buffet’s opinion (at least least not over the longer term in Mr. Buffet’s case). We do our very best to capture the returns the market offers at the lowest cost possible, based on your individual risk preferences and investment horizons. We do this by allocating investments to a “core” portfolio that we manage day-in and day-out, minute-by-minute.
On the margins, we utilize our years of experience with options to generate income and, if appropriate, hedge our exposures to potential extreme fluctuations. In this sense, we offer a level of service to you that is similar to what the initial purpose of hedge-funds was, at a small fraction of the cost.
This approach is unique among the “sea of suits” out there vying for people’s investment dollars. Most other advisors/brokers get paid from transactions via commissions for placing trades or by the very firms that manage the funds they invest their clients’ money in. Their first responsibility is not necessarily to the client. Their interests (i.e. pay checks) are not necessarily aligned with their clients’ best interests.
Our approach isn’t easy and can be extremely labor intensive, but we feel it is the right way to do things and is a noble enterprise. We feel so strongly about this, that we have our own money invested right along side yours!
We wish you all much health, happiness, and prosperity in 2016!
John Conti, COO
November 2015 Update
The market has rallied significantly since the October newsletter and come close to setting new highs. However, the bull market is six years old, earnings are 75% higher than average and interest rates appear likely to rise. For these reasons we remain vigilant and constantly look for ways to mitigate risk without sacrificing potential gains.
In the article below Jason Draut Ph.D. discusses our research into a private placement real estate company. Our initial due diligence is positive and we look forward to offering this new investment option to our clients.
The new team is also allowing us to roll out an “absolute return” options strategy. The strategy is designed to capture positive returns in both up and down markets. The strategy is labor intensive and John Conti and Chris Sheehy have been instrumental in rolling this out.
Jacob Mandel has been getting rave reviews as he helps new and existing clients with any all client service needs.
I’d like to once again thank our clients who have entrusted us with the care of their investments. We had our best month ever in terms of asset growth with many new clients referred by existing clients. The new team is definitely making a compelling case. We remain dedicated to improving on a process that produces positive outcomes for our clients.
WCM Market Commentary Q3 2015
One of the main stories for the third quarter of 2015 is the continued inaction of the Federal Reserve. Since 2013, the Fed has set the expectation for an increase in short-term interest rates sometime this year. With only two meetings left in 2015, the FED continues to delay any change in their zero interest rate policy. Since the market hates uncertainty, this has contributed to increased volatility in equities, currencies and in long-term interest rates. Along with this uncertainty from the FED, we also have several leading indicators in the U.S. manufacturing sector flattening or turning down including Industrial Production, ISM Manufacturing New Orders, and Capacity Utilization. Whether this downturn in U.S. manufacturing will reverse or whether the rest of the economy will follow remains to be seen. Inflation continues to be very muted running between 0% and 2% annually depending on which index is considered. A significant part of this low level of inflation is due to depressed commodity prices as China's demand for commodities has diminished in the past 12 months
The factors discussed above led to the significant declines in equity markets in the third quarter. Emerging markets led the way down with a decline of 17%. Almost half of the drop in EM equities was due to declines in EM currencies as developed market investors pulled capital out of riskier assets in general. International developed markets were down 10% and the U.S. market was down 7%. The U.S. fixed income market rebounded from its second quarter slump (down 1.8% in 2Q 2015) with a third quarter return of +1.4%. The 10-year U.S. treasury yield dropped 0.3% leading to a total return for the 10-year U.S. treasury bond of +3%. The WCM core portfolios benefited from this drop in interest rates and while our equity holdings lost value along with the global markets, a greater exposure to U.S. markets versus the benchmark led to outperformance in equities as well. For those portfolios with an equity hedge in place the risk reduction from the hedge reduced losses further.
We continue to see heightened risks for equity markets in the intermediate term and will continue to hedge equity exposure where appropriate. We also continue to see no threat from inflation and are therefore comfortable taking interest rate risk to reduce overall portfolio risk, capture higher yields, and gain potential price appreciation from falling interest rates in longer-dated Treasury bonds. As always, when either the market environment or the economic environment changes we will reconsider our portfolio positions in light of any new information.
Jason Draut Ph.D.
Chief Investment Officer
Here are some external articles we have found informative: