10-Year Treasury Rate -- Jan to Jun 2014
So far the economic news in the U.S. does not point to robust growth. Instead, on June 25th it was reported that the economy in Q1 2014 actually contracted at a 2.9% pace, sharply lower than earlier readings, and the worst result since 2008-2009. The chart below shows how bad the Q1 result actually were. The contraction was blamed on the bad winter (weren’t most winters like this from the 1970s to 1990s?) and thus expectations for Q2 2014 are for a rebound. The June jobs reports on its surface seems to support this reversal with the unemployment rate dropping from 6.3% to 6.1%. But hidden from the headlines was that June was the third month in a row that the labor force participation rate was at a 36-year historical low of 62.8%. Even worse, and almost completely unreported, is that the net 288,000 new jobs created in June consisted of a gain of 799,000 part-time workers and a shocking loss of 523,000 full-time workers. As one pundit remarked: “This labor market is much weaker than the last time the unemployment rate stood at 6.1%.”
Not surprising in 2014 is the never ending trend of professional stock-pickers underperforming the market indexes. The Wall Street Journal recently reported that 74% of actively managed mutual funds lagged the S&P 500 so far in 2014, matching the roughly 80% long term trend. Similarly, stock focused hedge funds in aggregate returned only 1% so far this year, well behind the indexes. We continue to advocate for Index ETFs as the only solution for stock market investing.
A quick mid-year update on Downtown Investment Advisory (DIA): Since launch about six months ago the business has gained traction, with over a dozen clients in four countries totaling more than $14 million under management, ranging in account size from $50,000 to over $3 million. Strategies vary, from aggressive stock ETF portfolios that incorporate emerging market indexes, to a conservative fixed-income strategy that seeks steady 4%-5% annual returns for a retiree as an alternative to cash. We have helped create more effective portfolios by setting up proper allocation plans, reducing costs, putting cash balances to work, and eliminating inefficiencies like heavy concentrations in single stocks and poor performing mutual funds. DIA greatly appreciates the strong feedback on the monthly blog articles, and of course the business referrals. DIA’s value proposition remains sophisticated, lower-cost, and conflict-of-interest free investment management tailored to each client, with an emphasis on intense personalized service and attention.