Granite Group Advisors -

NEWS

2015-01-26 :: 4th Quarter 2014 Commentary

Looking Back

The 4th quarter, while very volatile, was up close to 5% across the board in U.S. large cap stocks; and it did even better in the Mid Cap and Small Cap sectors.  Small cap had a tough year up to the 4th quarter, but it came up in the end.  Unfortunately, foreign markets did not fare so well.  Emerging Markets were down almost 5%, and EAFE was down roughly 4%.  Neither of these markets put in positive year for 2014. It didn’t matter whether you were a value or growth investor this year, the variance in returns for these two market segments was very close.     

Fixed income:  The entirety of Wall Street got fixed income wrong this year as we all expected a move towards higher rates.  What we did get was another good return year from fixed income and lower rates.

Absolute Return Hedge Fund of Funds did not fare so well this year, with most funds barely pulling a positive return. 

Real Estate continued to be sluggish this year, as many sectors moved up, but not at the acceleration that many on Wall Street had predicted. Year over year prices continued to move lower from double digits down to very moderate single digit returns.  

Commodities were down across the board.  The oil glut caused a major downturn in prices on stocks and debt.  Metals also took it on the chin as the China slowdown scared everyone. Additionally, the move upward in the U.S. dollar caused even more weakness, as all commodities are priced in U.S. dollars.

YTD   (Total Return)

Russell 1000  13.24%  

Mid-cap 13.22%       

Russell 2000 4.89%

Russell 1000 Value 13.45%     

Mid-cap Value 14.75%     

Russell 2000 Value 4.22%

Russell 1000 Grwth 13.05%    

Mid-cap Growth 11.90%    

Russell 2000 Growth 5.60%

MSCI EAFE  -7.35%       

MSCI Emer Mkt -4.63%  

S&P 500   13.69%

Barclays Aggregate 5.97%

 

Looking Forward    

 

Equities: We are now in a transition period of equities.  We are coming off many good years in a row, where P/E’s have been pushed into an area where we are a bit ahead of ourselves.  We are currently trading at almost 17 times 2015 numbers.  Earnings will have to come in better than expected to push the markets higher as we do not see much more upside for P/E expansion.  Therefore, we are calling for a very moderate mid to high single digit return for 2015.  The economy has been picking up as witnessed by 3rd quarter growth results, but we do not think a high GDP growth rate is sustainable.   

Fixed income markets:  All things being equal, we will see the Fed raise rates on short term borrowing this year, but the effect should be muted on the longer end of the yield curve.  Yields will move modestly higher but we don’t expect a major dislocation in fixed income this year.  We will most likely see a coupon collection type of year with a little price depreciation.

Commercial & Residential Real Estate:  The Real Estate market has seen record low interest rates, but the market has not returned to the peak prices of 2006. The issue is demographics.  The majorities of the population who own homes are retiring and should mute further real estate price increases. We think assisted living, independent living and apartments are the best place for investors seeking a real estate allocation.

Absolute Return Hedge Fund of Funds As we enter a period of more moderate fixed income returns we believe low volatility Absolute Hedge Fund of funds should do better than fixed income. These specific types of funds can lower overall portfolio volatility.

Commodities:  We expect oil and metals to move up, but not to the pre-drop levels.  The U.S. dollar may rally up a little bit further which impacts commodities prices, but Granite Group believes this will reverse at some point this year.

 

Have a wonderful Winter!

 


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