Investment Policy Update

One of our routines at AP Wealth is our monthly investment policy meeting. This time spent together allows us to review our asset allocation and portfolio construction, and to look at market activities more specifically, especially as they relate to our clients. Our December discussion yielded these points we wanted to share with you:


Real Estate Investment Trusts (REIT’s) are undervalued.


The recent spike in interest rates has been a headwind for REIT’s. REIT’s often suffer when interest rates rise as the attractive yields offered by REIT’s are less competitive with bonds and other income-oriented investments. REIT’s have been hit hard over the last month or two and the rationale that interest rates will markedly increase over the immediate future has been a root cause. We believe that interest rates will rise, but not as quickly as assumed by the sellers of REIT’s.


Mid-Cap equities often outperform their Large Cap big brothers.


Mid cap equities are usually more volatile, but frequently outperform large cap stocks. The dividends associated with large cap stocks will provide a firmer floor due to yield, but mid caps can outperform.


The strong dollar will continue to be a headwind for foreign equities.


International equities have suffered for a very long time. The MSCI EAFE (international index) continues to suffer while the US markets are on the rise. Investments denominated in foreign currencies will decrease in value as the dollar strengthens. Prices of commodities that are US dollar-based will decrease as the dollar strengthens. In other words, US holders of foreign investments will lose money even if the stocks stay level, since the dollar has strengthened versus the currency of the foreign investment.


Your questions and comments are always welcome. Please contact us!


Gene McManus, CPA, CFP

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