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Capital Markets Review for Financial Advisors

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Many Financial Advisors are looked to by their clients to explain market conditions. Here is a slideshare that may be useful to distill into a high level explanation for your clients.
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Capital Markets Review for Financial Advisors

  1. 1. INNOVATE | ELEVATE | DEMOCRATIZE CAPITAL MARKETS REVIEW “The beginning is the most important part of the work” —Plato Client Solutions 10/23/2017
  2. 2. General Disclosures This materialis for educationaland informational purposes only and is distributed by OptimalCapital Advisors, LLC, which is registered with the U.S. Securities and Exchange Commission (“SEC”). The registration described herein no way implies that the SEC has endorsed the above-referencedentity to provide any of the services discussed herein. Past performancemay not be indicativeof future results. Differenttypes of investments involve varying degrees of risk. Therefore, it should not be assumed that future performanceof any specific investment, investment strategy (includingthe investments and/or investment strategies or product recommended by OptimalCapital Advisors, LLC) will be profitableor equal the corresponding indicated performancelevel(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflectiveof current opinions or positions. Moreover, you should not assume that any discussion or informationcontained in this materialserves as the receipt of, or as a substitute for, personalized investment advice from OptimalCapital Advisors, LLC. Please remember to contact OptimalCapital Advisors, LLC if there are any changes in your personal/financialsituation or investment objectives for the purpose of reviewing/evaluating/revisingour previous recommendations and/or services. Please also advise us if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain availablefor your review upon request. Historical performanceresults for investment indices and/or categories have been provided for general comparison purposes only, and generallydo not reflect the deduction of transaction and/or custodial charges, the deduction of an investment managementfee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performanceresults. It should not be assumed that your account holdings do or will correspond directlyto any comparative indices. Diversificationdoes not protect an investor from market risk and does not ensure a profit. Performancewas affected by materialmarket and economic conditions that were independent of and not controlledby OptimalCapital or the managers of the underlying funds and may be differentin the future. Actual results of individualaccounts will vary due to client cash flows, timing of implementation, differentcustodians, the availabilityof underlying funds, applicable regulations and other factors. Smallaccounts may perform below the composite due to the greater impact of transaction costs. OptimalInvesting Strategies differ substantially from the market indices, which are included for comparison purposes only. NOTES TO HYPOTHETICAL INFORMATION This materialcontains certain hypotheticalperformanceand portfolioinformation. No representationis made about the overall hypotheticalportfolios or their suitability or potential benefits for any client or investor and no advice or recommendation is given with respect to such hypotheticalportfolios and are included for illustrationpurposes only. The hypotheticalportfolios do not represent actual client or investor accounts. Hypotheticalinformation,including hypotheticalperformanceresults, have many inherent limitations. They are generally prepared with the benefit of hindsight, may not involve financialrisk or reflect actual trading or asset allocations for any portfolioand therefore do not reflect the impact that economic and market factors may have had on the manager’s or advisor’s investment decisions for that portfolio. In fact, there are frequentlysharp differences between hypotheticalresults and the actual record subsequently achieved. No representationis made that such portfolio’s performancewould have been the same as such hypotheticalresults had the portfoliobeen in existence during such time. Another limitationis that investment decisions reflected in the hypotheticalinformationwere not made using that portfolioassets or asset allocation strategy under actual market conditions and therefore cannot completely account for the impact of financialrisk on the manner in which the portfoliowould have been managed and the assets allocated. This presentation is provided for educational purposes only and should not be construed as investment advice. In the event any of the assumptions used in this presentation do not prove to be true, results are likely to vary substantially from the examples shown herein. The informationprovided herein should not be construed as providing any assurance or guarantee as to returns that may be realized in the future from investments in any asset or asset class described herein. The informationcontained in this presentation is not intended to be used as a source of any specific investment recommendations. This presentation makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. Past performanceis not indicativeof future results, which may vary. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. Risk Considerations Special risks are inherent in internationalinvesting including those related to currency fluctuations and foreign, political,and economic events. All investing involves risk. Equity securities are more volatilethan bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies. Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely affected by changes in interest rates. High yield fixed income securities are considered speculative, involve greater risk of default, and tend to be more volatile than investment grade fixed income securities. Investments in foreign securities entail special risks such as currency, political, economic, and market risks. These risks are heightened in emerging markets. An investment in real estate securities is subject to greater price volatilityand the special risks associated with direct ownership of real estate. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affectinga particularindustry or commodity. Corporate bonds offer a high yield compared to some other investments, but is subject to the risk the corporate issuer will default on its debt obligations. Alternativeinvestments such as hedge funds are subject to less regulationthan other types of pooled investment vehicles such as mutual funds, may make speculative investments, may be illiquidand can involve a significant use of leverage, making them substantially riskier than the other investments. An AlternativeInvestment Fund may incur high fees and expenses which would offset trading profits. Alternative Investments Funds are not required to provide periodicpricing or valuation informationto investors. The Manager of an AlternativeInvestment Fund has total investment discretion over the investments of the Fund and the use of a single advisor applying generallysimilar trading programs could mean a lack of diversification, and consequentially, higher risk. Investors may have limitedrights with respect to their investments, including limitedvoting rights and participation in the managementof the Fund. All securities investing involves the risk of loss. Past performanceis no guarantee of future results. There can be no assurance that OptimalInvesting Strategies can meet its stated objectives. Northern Trust Research This materialis directed to eligiblecounterparties and professional clients only and should not be relied upon by retail investors. The informationin this report has been obtained from sources believed to be reliable,but its accuracy and completeness are not guaranteed. Opinions expressed are current as of the date appearing in this materialonly and are subject to change without notice. This report is provided for informationalpurposes only and is not intended to be and should not be construed as an offer, solicitationor recommendationwith respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Northern Trust Asset Managementcomprises Northern Trust Investments, Inc. Northern Trust Global Investments Limited,Northern Trust Global Investments Japan, K.K., NT Global Advisors Inc., 50 South Capital Advisors, LLC and personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company to offer investment products and services to personal and institutional markets. 2 Legal Disclaimer Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved.
  3. 3. Capital Markets Review:  Economy  Equity  Fixed Income  Hard Assets Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 3
  4. 4. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 4 Capital Markets Review: Economy Globalization is the driving force behind the growth miracle in emerging markets. Now a backlash against how the global income pie has been divided up is increasingly influencing the political affairs of developed markets. China is well on its way to regaining a dominant share of global GDP
  5. 5. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 5 Capital Markets Review: Economy While the probability of a recession in 2017 is low, it has risen dramatically for the 2018-’19 timeframe
  6. 6. Capital Markets Review: Economy Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 6 This tightening cycle has tracked the 2004- 2006 period closely, when measured by the real “effective” fed funds rate This measurement assumes that QE took us to a negative 3% effective fed funds rate and the FED has been in tightening mode for the past 30+ months. The question looms…. how much longer and how many more hikes until we trigger our next downturn???
  7. 7. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 7 Capital Markets Review: Economy
  8. 8. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 8 Capital Markets Review: Economy
  9. 9. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 9 Capital Markets Review: Economy
  10. 10. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 10 Capital Markets Review: Economy
  11. 11. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 11 Capital Markets Review: Economy
  12. 12. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 12 Capital Markets Review: Equity
  13. 13. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 13 Capital Markets Review: Equity
  14. 14. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 14 Capital Markets Review: Equity
  15. 15. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 15 Capital Markets Review: Equity
  16. 16. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 16 Capital Markets Review: Equity
  17. 17. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 17 Capital Markets Review: Equity
  18. 18. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 18 Capital Markets Review: Equity ***
  19. 19. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 19 Capital Markets Review: Equity
  20. 20. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 20 Capital Markets Review: Equity ******
  21. 21. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 21 Capital Markets Review: Equity
  22. 22. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 22 Capital Markets Review: Equity
  23. 23. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 23 Capital Markets Review: Equity
  24. 24. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 24 Capital Markets Review: Equity International and Emerging stock markets are much cheaper than the US
  25. 25. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 25 Capital Markets Review: Equity
  26. 26. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 26 Capital Markets Review: Equity We have reached historical lows in the percentage of active funds outperforming. We expect active management to regain favor over the next few years. Equity hedge funds have underperformed the S&P 500 for 7 straight years. We expect a period of outperformance to ensue.
  27. 27. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 27 Capital Markets Review: Fixed Income
  28. 28. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 28 Capital Markets Review: Fixed Income
  29. 29. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 29 Capital Markets Review: Fixed Income
  30. 30. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 30 Capital Markets Review: Fixed Income
  31. 31. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 31 Capital Markets Review: Hard Assets • Current comparison showing hard assets less expensive than financial assets • Prolonged low price environment possibly setting the stage for the next cycle of rising prices Source:VanEck
  32. 32. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 32 Capital Markets Review: Hard Assets “Inflation is mostly a monetary phenomenon” – Milton Friedman The annual % change in velocity of money has accelerated faster than any time over the last 4 decades! Commodities made a major double bottom in 2016. Beginning of a new super-cycle??? Positive years typically do not show up alone. Industrial metals outperformed precious metals by the most in 26 years. Industrial and Energy stock sectors had the best performance since 1999. Trump trade policies are supportive higher grain and gas prices, and higher inflation in general.
  33. 33. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. 33 Capital Markets Review: Hard Assets • Global demand growth continues despite slower projected pace Source:VanEck • Global population to rise 30% by 2050 requiring more food, infrastructure, and power Source:United Nations; World Population Prospects, July 2015
  34. 34. TACTICAL BALANCED 16 35 63 Min Strategic Max Current U.S. EQUITIES 7 14 21 LARGE, MID, SMALL, GROWTH, BALANCED, VALUE, INDEX, ACTIVE, INTERNATIONAL LARGE, EMERGING, GLOBAL, MUTUAL FUNDS, ETFs, SECTOR, LONG/SHORT, ETC. FIXED INCOMEEQUITIES HEDGED ASSETS HARD ASSETS 15 30 50 14 28 40 0 7 15 Min Strategic Max Min Strategic Max Min Strategic Max INTERNATIONAL EQUITIES 3 7 14 EMERGING MARKET EQUITIES 3 7 14 HEDGED EQUITIES 3 7 14 Current U.S. FIXED INCOME INTERNATIONAL FIXED INCOME 5 10 20 10 20 30 ABSOLUTE RETURN MANAGED FUTURES 7 14 20 7 14 20 1-3 MONTH T-BILLS, GOVERNMENT BONDS, HIGH YIELD, CONVERTIBLE BONDS, SR. LOAN BANK NOTES, INTN’L TREASURIES, EMERGING MARKETS SOVERIGN DEBT, FLOATING RATE NOTE, INVESTMENT GRADE CORPORATES, TIPS, MBS, PREFERREDS, AGGREGATE BOND, ETC. Current MARKET NEUTRAL, GLOBAL MACRO, RISK MANAGED, ETC. EQUITIES, FIXED INCOME, CURRENCIES, COMMODITIES, ETC. HARD ASSETS 0 7 15 PRECIOUS METALS, GOLD, SILVER, OIL, RESOURCES, OTHER COMMODITIES Current Allocation to an asset class or individual position may change in actual portfolios. The above example is for illustrative purposes only. Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. Optimal Balanced:
  35. 35. INNOVATE | ELEVATE | DEMOCRATIZE 35Proprietary information - Copyright © 2017 by Optimal Capital Advisors, LLC. All rights reserved. Improving clients’ lives If you would like a personal review of these slides or other Advisory client information please contact Craig Wesley: cwesley@optimalcapital.com 231-933-4677

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