Broker Check


To say the least, the ability to generate positive investment returns over the past couple of years has been challenging and confounding. In 2015, U.S. equities markets posted their first loss since 2008 with the Dow Jones Industrial Average declining 2.2%. But these dismal numbers only tell part of the story. Commodities investments, particularly oil and gas, collapsed as prices plummeted which in turn, infected the credit markets, particularly high yield bonds. Foreign currencies declined precipitously vs. the dollar as a stronger relative economy and higher interest rates in the U.S. continued to attract overseas capital. This effect, in turn, created a headwind for gains on international equities despite satisfactory returns. Emerging markets were the biggest losers as both debt and equities were hammered. And low interest rates and the fear of rising rates placed a damper on bonds. The end result has been that over the last two years, asset allocation has not been the investors' friend and, in fact, has exacerbated portfolio losses.

With interest rates near or at all time lows, the stock market at or near very high levels, commodities and emerging markets stocks and bonds under siege with no end in sight, what steps can be taken to generate reasonable risk adjusted returns?

I have identified three general categories where I believe opportunities may lie. The first theme is what I would deem niche opportunities - sectors that have either been overlooked by Wall Street or where analysis has dismissed or under rated crucial data points. An example would be the hotel and resort sector in real estate that has not rebounded as robustly as other types of commercial real estate and would appear to be under-valued in selective geographical regions.

The third category of opportunities results from the impact that central bank policy has on various types of investments. The fact is that since the 2008 financial crisis, the benefit of thorough and accurate security analysis has been temporarily supplanted by the financial markets reaction to projected and real monetary policy. As we now know, the three phases of quantitative easing in the U.S. greatly inflated stock prices and real estate values. While our QE has ended, Europe launched their own version 10 months ago. Though every situation is different, a reasonable case can be made that QE may have a similar effect on European stocks and real estate.

While solid investment options may appear to be limited, it has been my experience over my 37 year career that where there is stress, there is opportunity. As Warren Buffet has so eloquently and succinctly stated, to be a successful investor, you buy on fear and sell on greed. In this era of volatile and unpredictable financial markets, I have never worked harder to uncover "ahead of the curve" investment options on behalf of my clients, and will introduce them to your portfolios when appropriate.

Finally, despite my view that there are tactical moves that may enhance portfolio returns, I remain committed to an overall strategy of asset allocation. As a believer in mean regression, I have the utmost confidence that when volatility declines and stability returns, I believe the merits of asset allocation should prove worthy of investors' faith and confidence.



Clifford L. Caplan, CFP®, AIF®