Investor lessons from the start of 2015
Joel Dresang: Kyle, the first quarter of 2015 is over. We know enough now about the financial results. What should investors learn from that?
Kyle Tetting: I think the first quarter was very interesting. You look at, in particular, the returns of domestic stocks – a big divergence so far this year from what we’ve seen last year. You know, in 2014, value and growth kind of moved in tandem. But what we’ve seen this year is that value has had a pretty rough start to the year, in part because of falling oil prices. You look at energy and utilities – not a very good start to the year.
But growth, on the other hand, up pretty significantly.
Joel: What, if anything, should investors do about that divergence?
Kyle: If they’re balanced, if they’re invested the right way, they already have taken advantage of those divergences. Active management is really what’s best suited to take advantage. So you look at a manager that’s not tied to the S&P 500 but can go after growth stocks when they think that growth is appropriate. I think they’ve really benefited so far this year when you look on the domestic side.
Joel: What about international stocks?
Kyle: International, another story where there are some markets that are doing really, really well out there. You look at the Eurozone, in particular, and a lot of European countries have – while maybe not economically fully recovered – the markets themselves are doing quite well.
But the story is similar in that not every market is doing well. So the active management has really outperformed the indexes this year. The reason for that being that just a lot of countries in the index haven’t recovered the way that others have, and active management isn’t tied to those weak countries.
Joel: Kyle, we talk about corporate earnings and interest rates affecting investors long-term. What about interest rates? What about the fixed-income investors?
Kyle: The interest rate side of the picture is such an interesting case as well. We’ve talked for years now about how the Fed is soon to raise rates. And yet, we continue to kick that can down the road. Potentially for a while longer, we’ll kick that can down the road.
We’ve seen some small changes in the first quarter to the language that the Fed is using regarding when they’re going to raise those rates. But still, don’t expect that to happen anytime soon.
So, for the balanced investor, the first quarter bonds were a very strong performer, in excess of what the broad stock measures had done in the first quarter.
Joel: So what does all this say about allocation?
Kyle: I think it’s another case for why balance is so important. You look just at the S&P 500, up just a little bit less than 1% in the first quarter. But most balanced investors were able to do at least that, while taking significantly less risk. And it’s because of things like international, which had a really strong quarter, despite a very poor 2014.
If we try to time getting in and out of that stuff, we’re liable to miss the kind of quarter that we saw just because it’s very difficult to get in and out at the appropriate time.
You go back to that balance. You go back to making sure that you have a little bit of exposure to everything. And when some things are going up and other things are going down, yeah, you’re going to miss out on the best of the best, but you’re always going to participate.
Kyle Tetting is director of research at Landaas & Company.
Joel Dresang is vice president- communications at Landaas & Company.
Money Talk Video by Peter May
(initially posted April 24, 2015)