The first quarter of 2019 has come to a close and as is customary, we review what has transpired. In sharp contrast to the final quarter of 2018, equity markets around the globe produced strong returns. As evidence, the benchmark S&P 500 Index was up 13.65% for the quarter, while the Bloomberg World Index was up 12.29%. These positive returns were in sharp contrast to the end of 2018 and have started 2019 in great fashion.
The three main equity strategies that we manage at BIA have performed well in the year-to-date period. The Biondo Focus Strategy advanced 13.07%, the Biondo Growth Strategy was up 11.87% and the Biondo Dividend Strategy appreciated by 10.83% in 2019 (all returns net of fees). Having all three strategies performing well is a welcome change from recent years, which typically saw a greater divide between growth-oriented strategies (Focus, Growth) and value-oriented strategies (Dividend).
The breadth of strong performance is a sign of a much healthier market than existed in 2018, where growth strategies performed well while value strategies did not.
As we began the year, investors were concerned about three main issues: The Federal Reserve’s stance on interest rate hikes, trade issues – particularly between US and China, and lastly, earnings growth. So far in 2019, the Fed has not raised interest rates which has resulted in improved investor sentiment. To date, there has been no final announcement on US-China trade relations, but rhetoric out of both governments has pointed to a positive resolution. Earnings growth is expected to slow in 2019, yet still remain positive relative to 2018. In effect, all three concerns have been largely alleviated in the minds of investors and therefore, we witnessed a strong recovery in asset prices.
Our investment process incorporates both fundamental analysis and technical analysis. In simple terms, the fundamental analysis that we conduct leads us to the what – which companies do we want to invest in and the technical analysis leads us to the when – at what point do we buy or sell/trim positions.
The two main inputs in our technical research are Relative Strength and Money Flow. Relative Strength is what it sounds like – how well is a certain company performing from a price perspective relative to its peers and the market in general. Money Flow measures the buying or selling pressure of a security – whether it be an individual company, a specific sector or even the market as a whole.
As you may recall from our previous market update, we came into the year cautiously optimistic. While markets had gotten much more attractive in the fourth quarter correction from a fundamental perspective, the technical picture was rather dismal. Our expectation was that markets might need to retest the lows of Christmas Eve at least once before beginning a renewed advance.
Instead, the US equity markets charged higher for much of January and into early February. In fact, Money Flow readings were so strong that a rare “Breadth Thrust” (also referred to as the “Zweig Thrust”) was recorded. According to Investopedia, only 14 such recordings have occurred since 1945 and the average gain has been 24.6% in the following 11 months. From a technical perspective, there is a lot to be optimistic about in regards to US equity markets for the foreseeable future.
In our view, how the remainder of 2019 plays out will largely depend on economic activity and earnings growth. While concerns remain, economic activity has remained fairly robust thus far in 2019. As we write, we are at the beginning of earnings season for the first quarter. In the coming weeks, we will learn a great deal from companies about how the year has started from a growth standpoint and we should also have a much better idea of how management teams at the companies we own are viewing the balance of the year. This is also a period that will guide us as we manage the various strategies that we employ on your behalf.
On a longer-term basis, we continue to believe that exposure to global growth opportunities through the ownership of great companies will serve you well over time. As always, our team will continue to search for new opportunities, stay well-focused on current investments and adjust to an ever-evolving landscape. While we believe that we are well-positioned, we are also certain that there is a need to continuously adapt and evolve our strategies to meet the various needs of our clients.
As we have in recent communications and in this current issue, we continue to emphasize our financial planning capabilities. Our process, which we have named WealthMap, is a comprehensive tool that allows you to organize all of your financial accounts regardless of which institution they are held at, collaborate and plan for any financial goals that you have, safely and securely store and manage your most important financial documents and have access to all of this information from any mobile device.
We also have launched our new monthly client education series, WealthSense. WealthSense will cover a wide range of Behavioral Finance topics, with the ultimate goal of educating our clients to become better investors. While we take great pride in our investment management capabilities, when clients do not let these strategies work to their long-term benefit, they risk the ability to achieve their financial goals. We live in the age of information and there is no shortage of financial news and coverage available. Along with that comes misinformation and our goal is to act as your filter in order to allow you to make more informed and better decisions.
The combination of our financial planning process – WealthMap, our focus on continued client education – WealthSense, and our tradition of providing investment strategies that cover a wide range of client needs, is a tremendous value available to our clients. If you haven’t discussed our planning process or are not subscribed to WealthSense, you are literally leaving money on the table. As your Advisor, I highly recommend that you call us to take advantage of both!
Joseph P. Biondo
Chief Executive Officer
Chief Investment Officer
Sources: HAS & Wealthscape; Strategy returns, Bloomberg; Index returns, Investors Business Daily; Fed rates, US & China, earnings growth, Investopedia; Breadth Thrust
The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.