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Review of the Markets - 1st Quarter 2013

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Review of the Markets - 1st Quarter 2013

  1. 1. Quarterly Market ReviewBarry Mendelson, CFP®President & Financial Advisor1399 Y i V ll Rd S it 24 b @ l tiyFirst Quarter 20131399 Ygnacio Valley Rd, Suite 24 barry@elevationwm.comWalnut Creek, CA 94598 925-348-5852www.elevationwm.com
  2. 2. DisclosuresOpinions expressed are those of Barry Mendelson, CFP® and ElevationWealth Management.This presentation should not be construed as investment advice.The information contained in this presentation is compiled from sourcesp pbelieved to be reliable.Investments in securities involve the risk of loss. Past performance is noguarantee of future results.The markets can remain irrational longer than you can remain solvent.2
  3. 3. AboutBarry Mendelson, CFP®Local investment and personal finance professional. More than 18 years experienceLocal investment and personal finance professional. More than 18 years experienceworking for leading financial services companies including Charles Schwab, AXARosenberg, Neuberger Berman, and Franklin Templeton. Prior to forming ElevationWealth Management in 2011, was a Vice President in Charles Schwab & Co’s $250billi i t t t di i i C tifi d Fi i l Pl ™ tifi tbillion investment management division. Certified Financial Planner™ certificateholder since 2008. Board of Directors Financial Planning Association of the East Bay,Cancer Support Community of the Bay Area, and Chairs 4 Charity. B.A. in BusinessEconomics & Accounting from U.C. Santa Barbara in 1995.co o cs & ccou t g o U C Sa ta a ba a 995Elevation Wealth ManagementEl ti W lth M t i S F i B A b d R i t dElevation Wealth Management is a San Francisco Bay Area based RegisteredInvestment Advisor that provides investment management and financial planningservices to discerning individuals, families, and companies across the United States.As an independent and privately held firm – Elevation specializes in helpingp p y p p ginvestors grow, manage, and protect their wealth. As a Fiduciary and fee-only –Elevation places the interests of clients above all else.3
  4. 4. Timeline of Events: Quarter in ReviewTimeline of Events: Quarter in ReviewFirst Quarter 2013Data show US retail salesincreased 1.1% in February,the largest rise sinceFiscal cliff –US House ofRepresentativesd t US S t ’Euro zone’sFOMC minutes signal debate onscaling back US central bank’sbond buying program.US Federal ReserveHaruhiko Kurodanamed governor ofBank of Japan.September 2012.Data show USGDP rose 0.4%in Q4 2012,revised fromprior estimate of0 1% dadopts US Senate’sbudget bill.recession deepensas exports fromleading economiessuffer and Q4 GDPfalls 0.6%.Dow Jones closes at recordhigh of 14,253, topping recordset in October 2007.announces it willcontinue purchasing$40 billion ofmortgage-backedsecurities and $45billion of TreasurypCyprus reaches€10B rescuedeal with IMF,EU and ECB0.1% decrease.World Bank cuts2013 forecast forglobal growth from3% to 2.4%.ysecurities each month.Italy’s electionends indeadlockedparliament.EU, and ECB.12/31/2012 03/29/201312/31/2012 03/29/20134The graph illustrates the MSCI All Country World Index (net div.) daily returns over the quarter. Source: MSCI data copyright MSCI 2012, all rights reserved. The events highlighted are not intended to explain marketmovements. The index is not available for direct investment. Past performance is not a guarantee of future results.
  5. 5. Quarterly Numbers-in-ReviewU.S. and International Market IndexesJanuary 1, 2013 through March 31, 2013GlobalEmergingInt’l SmallInt’l ValueU.S. REITU.S.U.S.U.S. U.S. Gov/1-5 YearBonds+0.2%MarketsStocks-1.6%Stocks+7.2%Stocks+3.1%Stocks+7.0%Small CapStocks+12.4%ValueStocks+12.3%Large CapStocks+10.6%Credit 1-3Year Bonds+0.2%BONDSU.S. STOCKS INTERNATIONAL STOCKSONEYear 14.0% 18.8% 16.3% 13.2% 10.4% 10.9% 2.0% 1.8% 1.2%FIVE5 8% 4 9% 8 2% 6 1% 1 2% 2 0% 1 1% 2 7% 2 4%Source: Morningstar Direct 2013 Market segment (Index representation) as follows: U S Market (Russell 3000 Index); U S Small Company Stocks (Russell 2000 Index) U SAnnualized for 5 and 10 Year PeriodsYears 5.8% 4.9% 8.2% 6.1% -1.2% 2.0% 1.1% 2.7% 2.4%TENYears 8.5% 9.2% 11.5% 12.1% 10.3% 13.1% 17.0% 3.3% 3.0%Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Market (Russell 3000 Index); U.S. Small Company Stocks (Russell 2000 Index), U.S.Value Stocks (Russell 1000 Value Index). U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed (MSCI EAFE Index (net div.)), EmergingMarkets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI 1-5 Yr Hdg USD), US Bonds (BofA ML Corp & Govt 1-3 Yr TR). Indexes are unmanaged baskets ofsecurities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Pastperformance is not a guarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currencychanges, political risks, foreign taxes, and different methods of accounting and financial reporting.
  6. 6. All-Time Market HighsS&P 500PerformanceCalendar DaysBetween New Highand Market PeakGain BetweenNew High and BullMarkets EndBest Case 2,711132222%%Worst CaseMedian of alli 19541324172.3%18%cases since 1954Mean of all casessince 1954417644 40%S “W ld D d t b k t t ?” M k tW t h F b 28 2013 I d d b k t f iti th t t il bl f di t i t t bsince 1954Source: “Would new Dow record set a bear market trap?”, MarketWatch, Feb 28, 2013. Indexes are unmanaged baskets of securities that are not available for direct investment byinvestors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Allinvestments involve risk, including loss of principal.
  7. 7. All Time Market HighsAll-Time Market HighsIf Investors had bought on the date of a new high on the S&P 500:P iti t f 8 t f 9 5 h ldi i d• Positive returns for 8 out of 9 5-year holding periods(October 2007 is the exception)P iti t f ll 10 h ldi i d• Positive returns for all 10-year holding periodsSource: NY Times, April 5, 2013: “Even After New Highs, the Rally May Last” by James B. StewartPast performance does not guarantee future result.
  8. 8. Individual Country ReturnsJanuary 1, 2012 through December 31, 2012Developed Markets (% Returns) Emerging Markets (% Returns)Source: Morningstar Direct 2013. Country performance based on respective indices in the MSCI All Country World IMI Index (for developed markets) and MSCIEmerging Markets IMI Index. All returns in USD currency and net of withholding tax on dividends. Indexes are unmanaged baskets of securities that are not available fordirect investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not aguarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currency changes,political risks, foreign taxes, and different methods of accounting and financial reporting.8
  9. 9. International InvestingRanking of Markets Around the World — Ten-Year Performance in US DollarsAnnualized Returns Year Ending December 31, 20129Source: Morningstar Direct 2013. Countries represented by their respective MSCI IMI(net div.). Indexes are unmanaged baskets of securities in which investors cannotdirectly invest; they do not reflect the payment of advisory fees or other expenses associated with specific investments or the management of an actual portfolio. Pastperformance is not a guarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreigncurrency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.
  10. 10. The Need for DiversificationA t Cl I d P f 1997 2011HighestReturnAsset Class Index Performance 1997-2011LowestReturnReturnDiversification does not guarantee a profit or protect against a loss.Data Sources: Center for Research in Security Prices (CRSP), BARRA Inc. and Morgan Stanley Capital International, March 2012. All investments involve risk. Foreign securities involve additional risks, including foreign currency changes,political risks, foreign taxes, and different methods of accounting and financial reporting. Past performance is not indicative of future performance. Treasury bills are guaranteed as to repayment of principal and interest by the U.S. government.This information does not constitute a solicitation for sale of any securities. CRSP ranks all NYSE companies by market capitalization and divides them into 10 equally-populated portfolios. AMEX and NASDAQ National Market stocks are thenplaced into deciles according to their respective capitalizations, determined by the NYSE breakpoints. CRSP Portfolios 1-5 represent large-cap stocks; Portfolios 6-10 represent small caps; Value is represented by companies with a book-to-market ratio in the top 30% of all companies Growth is represented by companies with a book-to-market ratio in the bottom 30% of all companies S&P 500 Index is the Standard & Poor’s 500 Index The S&P 500 Index measures themarket ratio in the top 30% of all companies. Growth is represented by companies with a book to market ratio in the bottom 30% of all companies. S&P 500 Index is the Standard & Poor s 500 Index. The S&P 500 Index measures theperformance of large-capitalization U.S. stocks. The S&P 500 is an unmanaged market value-weighted index of 500 stocks that are traded on the NYSE, AMEX and NASDAQ. The weightings make each company’s influence on the indexperformance directly proportional to that company’s market value. The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East Index) is comprised of over 1,000 companies representing the stock markets ofEurope, Australia, New Zealand and the Far East, and is an unmanaged index. EAFE represents non-U.S. large stocks. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes and differentmethods of accounting and financial reporting. Consumer Price Index (CPI) is a measure of inflation. REITs, represented by the NAREIT Equity REIT Index, is an unmanaged market cap-weighted index comprised of 151 equity REITS.Emerging Markets index represents securities in countries with developing economies and provide potentially high returns. Many Latin American, Eastern European and Asian countries are considered emerging markets. Indexes areunmanaged baskets of securities without the fees and expenses associated with mutual funds and other investments. Investors cannot directly invest in an index.
  11. 11. Elevation’s Investment PhilosophyInvest For The Long TermInvest For The Long-TermThe Cycle of Market Emotions. Bad investments often lead to bad (investing)behavior.11
  12. 12. CommoditiesCommoditiesFirst Quarter 2013 Index ReturnsC diti ttl d li htl l d i th Individual Commodity (% Returns)Commodities settled slightly lower during thefirst quarter, somewhat offsetting a strong comebackat the end of 2012.The energy complex advanced, with natural gasproviding significant total return during the period6.1214.9216.25WTI C d OilUnleaded GasNatural GasCottonIndividual Commodity (% Returns)providing significant total return during the period.Precious metals finished lower, as investors’ sensitivityto economic and geopolitical risks eased.Soft commodities generally finished lower. One -0.010.380.561.854.20Heating OilSoybeanBrent OilWTI Crude OilSoybean Oilexception was cotton, as the market incorporatedprojections from the US Department of Agriculturethat indicated a reduction in production capacity.P i d R t (%) * A li d -6 48-5.36-5.03-2.77-0.36 CornNickelGoldLive CattleSilverAsset Class Q1 1 Year 3 Years** 5 Years** 10 Years**Commodities -1.13 -3.03 1.42 -7.11 3.67Period Returns (%) * Annualized-9.53-8.28-7.25-6.57-6.48 SilverCoffeeCopperLean HogsAluminum-12.46-9.99-9.56 SugarZincWheatPast performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. All indexreturns are net of withholding tax on dividends. Dow Jones-UBS Commodity Index Total Return data provided by Dow Jones ©.12
  13. 13. World Asset ClassesTh US k t l d it t d l d US d i k t ft t f i b th J d F b ThWorld Asset ClassesFirst Quarter 2013 Index ReturnsThe US market led equity returns vs. developed ex US and emerging markets after strong performances in both January and February. TheUS yield curve steepened and remained upwardly sloped.Barclays US Aggregate Bond IndexMSCI Emerging Markets Index (net div.)Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.M k t t (i d t ti ) f ll US L C (S&P 500 I d ) US S ll C (R ll 2000 I d ) US V l (R ll 1000 V l I d ) US R l E t t (D J US S l t REIT I d ) Gl b l R lMSCI Emerging Markets Value Index (net div.)13Market segment (index representation) as follows: US Large Cap (S&P 500 Index), US Small Cap (Russell 2000 Index), US Value (Russell 1000 Value Index), US Real Estate (Dow Jones US Select REIT Index), Global RealEstate (S&P Global ex US REIT Index), International Developed Large, Small, and Value (MSCI World ex USA, ex USA Small, and ex USA Value Indexes [net div.]), Emerging Markets Large, Small, and Value (MSCI EmergingMarkets, Emerging Markets Small, and Emerging Markets Value Indexes), US Bond Market (Barclays US Aggregate Bond Index), and Treasury (One-Month US Treasury Bills). The S&P data are provided by Standard & PoorsIndex Services Group. Russell data copyright © Russell Investment Group 1995–2012, all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by DowJones Indexes. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G.Ibbotson and Rex A. Sinquefield).
  14. 14. US StocksR k d R t f th Q t (%)US StocksFirst Quarter 2013 Index ReturnsAll j US t l t d iti lt12 3112.3913.21L C V lSmall CapSmall Cap GrowthRanked Returns for the Quarter (%)All major US asset classes posted positive resultsin the first quarter, with the broad market returning11.07%. Asset class returns ranged from 9.54% forlarge growth stocks to 13.21% for small growth stocks.Across the size spectrum small caps outperformed10.6111.0711.6312.31Large CapMarketwideSmall Cap ValueLarge Cap ValueAcross the size spectrum, small caps outperformedlarge caps. There was a positive value premiummarketwide in the US, driven by the performance of largevalue and midcap value stocks; however, small cap valuestocks underperformed small cap growth stocks.9.54Large Cap GrowthP i d R t (%) * A li dW ld M k t C it li ti US Period Returns (%) * AnnualizedAsset Class 1 Year 3 Years** 5 Years** 10 Years**Marketwide 14.56 12.97 6.32 9.15Large Cap 13.96 12.67 5.81 8.53Large Cap Value 18.77 12.74 4.85 9.1748%World Market Capitalization—USLarge Cap Growth 10.09 13.06 7.30 8.62Small Cap 16.30 13.45 8.24 11.52Small Cap Value 18.09 12.12 7.29 11.29Small Cap Growth 14.52 14.75 9.04 11.61US Market$17.4 trillion14Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap(Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap: Russell 3000 Index is used as the proxy for the US market. Russell data copyright ©Russell Investment Group 1995–2012, all rights reserved. The S&P data are provided by Standard & Poors Index Services Group.
  15. 15. Select Country PerformanceSelect Country PerformanceTh j it f d l d k t t d iti t J t k i d 12 27% th l l t ti d tFirst Quarter 2013 Index ReturnsThe majority of developed markets posted positive returns. Japanese stocks gained 12.27%, as the local government continued toimplement its stimulus program. After receiving its first investment-grade rating, the Philippines posted the highest performance amongemerging markets.Developed Markets (% Returns) Emerging Markets (% Returns)9 449.8410.8110.8712.2714.66Ne ZealandSwedenUSSwitzerlandJapanIreland6.578.4013.9814.9419.22MexicoTurkeyThailandIndonesiaPhilippines4.166.077.227.558.679.44Hong KongDenmarkIsraelBelgiumAustraliaNew Zealand-2.35-0.69-0.320.524.436.57TaiwanChileMexicoMalaysiaBrazilPeru0.901.942.052.892.983.73NorwayNetherlandsPortugalUKFinlandSingapore-4.07-3.39-3.16-2.63-2.51 KoreaMoroccoRussiaChinaIndia-7.50-5.14-3.410.660.660.76GermanyCanadaFranceSpainItalyAustria-11.67-11.07-8.15-6.86-6.57 HungaryColombiaSouth AfricaEgyptPoland15Country performance based on respective indices in the MSCI All Country World IMI Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholdingtax on dividends. MSCI data copyright MSCI 2012, all rights reserved. Russell data copyright © Russell Investment Group 1995–2012, all rights reserved.-9.70yGreece -13.56 Czech Republic
  16. 16. Global DiversificationGlobal DiversificationFirst Quarter 2013 Index ReturnsTh tf li ill t t th f f diff t R k d R t f th Q t (%)These portfolios illustrate the performance of differentglobal stock/bond mixes and highlight the benefits ofdiversification. Mixes with larger allocations to stocksare considered riskier but also have higher expectedreturns over time.3.304.966.6350/5075/25100% StocksRanked Returns for the Quarter (%)Growth of Wealth: The Relationship between Risk and Return0.011.653.30100% Treasury Bills25/7550/5050 00060,000Growth of Wealth: The Relationship between Risk and ReturnStock/Bond Mix100% Stocks75/25* A li dP i d R t (%)30,00040,00050,00050/5025/75100% Treasury BillsAsset Class 1 Year 3 Years** 5 Years** 10 Years**100% Stocks 11.19 8.35 2.63 9.9275/25 8.46 6.50 2.50 8.0950/50 5 69 4 50 2 05 6 08* AnnualizedPeriod Returns (%)10,00020,00001/1988 01/1993 01/1998 01/2003 01/2008 01/201350/50 5.69 4.50 2.05 6.0825/75 2.89 2.35 1.32 3.92100% Treasury Bills 0.06 0.07 0.30 1.6216Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect expenses associated with the management an actual portfolio. Assetallocations and the hypothetical index portfolio returns are for illustrative purposes only and do not represent actual performance. Global Stocks represented by MSCI All Country World Index (gross div.) and TreasuryBills represented by US One-Month Treasury Bills. Globally diversified portfolios rebalanced monthly. Data copyright MSCI 2012, all rights reserved. Treasury bills © Stocks, Bonds, Bills, and Inflation Yearbook™, IbbotsonAssociates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
  17. 17. Contact infoMore articles at:http://elevationwm.com/articlesblog/Barry Mendelson, CFP®President & Financial Advisor925-348-58521399 Ygnacio Valley Rd, Suite 24barry@elevationwm com Walnut Creek CA 94598barry@elevationwm.com Walnut Creek, CA 94598www.elevationwm.com17

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