asset management Tag

Real Estate Planning: An Integrated Approach to Growing and Protecting Wealth

Discover a personalized approach to financial planning that aligns your wealth with your life goals. CIG Capital Advisors offers customized wealth management strategies, tax planning, retirement income solutions, and legacy preservation to help you navigate today’s economic landscape with confidence.

Strategic Wealth Planning: A Personalized Approach to Financial Confidence

Discover a personalized approach to financial planning that aligns your wealth with your life goals. CIG Capital Advisors offers customized wealth management strategies, tax planning, retirement income solutions, and legacy preservation to help you navigate today’s economic landscape with confidence.

Update From CIG Asset Management: Time to Reconsider Regret

Update from CIG Asset Management – What’s Your Benchmark?

Do you compare your investment portfolio’s performance to a popular stock that you hear about on CNBC?

This is the daily chart for Nvidia, a single stock that soared +220% year-to-date through November 30, 2023. [i]

Maybe you compare your portfolio to the S&P 500.

Year-to-date through November 30, 2023, the S&P 500, represented by the SPDR S&P 500 ETF (SPY), is up +20.7%. [ii] It might be appropriate to use the S&P 500 as your benchmark if you invest all your money in large and mid-sized companies that are domiciled in the United States. However, if you are using an important tool like many investors in managing investment risk – diversification – that is, spreading your investments among and within different asset classes, then comparing your performance to the S&P 500 is likely to leave you disappointed.

This year, that disappointment is likely to be WORSE because as we discussed last month in Year-to-Date U.S. Stock Performance in Pictures, the S&P 500 performance thus far this year had been dominated by just 7 stocks – the Magnificent 7 – which Torsten Slok, Chief Economist at Apollo Asset Management said were becoming more and more overvalued and, in our view, more dangerous to invest in. [iii] Are we headed toward a big loss like post the year 2000, when the dot com stocks fell and the S&P 500 had fallen -49% from its peak on March 27, 2000, to its low On October 9, 2022? [iv]

At CIG, we believe in the adage, “Don’t put all your eggs in one basket”. We employ active asset allocation to employ varying levels of exposure to various sectors of domestic and international stocks, fixed income, and alternatives, such as gold and commodities, in an attempt to manage risk throughout market cycles.

How do we compare our strategies’ performance?

At CIG, we utilize benchmarks that are invested in a blend of three major asset classes- domestic equities, international equities, and fixed income.

• Domestic equities are represented by the Russell 3000 Index, a market capitalization-weighted index which measures the performance of the 3,000 largest U.S. companies and representing approximately 96% of the investible U.S. equity market. [v]
• International equities are represented by the MSCI ACWI ex USA Index, an index covering approximately 85% of the global equity opportunity set outside of the United States. [vi]
• Fixed income is represented by the Bloomberg U.S. Aggregate Index, an index composed of investment-grade government and corporate bonds. [vii]

The pie chart below illustrates the weightings of the three major asset classes in our balanced benchmark. We compare the performance of our clients whom we generally describe as balanced investors to the performance of this balanced benchmark.

In the following bar chart, we compare year-to-date performance of the components of our balanced benchmark to the S&P 500 and Equal-Weighted S&P 500 as of November 30, 2023.

Year-to-date, the Russell 3000 – the domestic equity index we use in our benchmarks – gained +17.8%. The Russell 3000 has a similar issue to Magnificent 7 stock dominance, with 24% of the index invested in these seven stocks but not to the same extent as the S&P 500, with 28%. [viii] Over the same period, the MSCI ACWI ex USA index (ACWX) gained +10.1%, less than half of the S&P 500, and the Bloomberg U.S. Aggregate Index (AGG) was only up +1.9%. [ix] This year, if you employed diversification – spreading your investments among and within different asset classes in the chart above instead of only investing in the S&P 500, you clearly experienced lower returns than the S&P 500.

Now that we have told you about our balanced benchmark, what is the appropriate period to assess how one has done versus the benchmarks? Should you look at it every day? How should we be looking at returns and the amount of risk you are taking?

We prefer to look at returns and risk over a trailing 3-year period. We measure risk using the standard deviation of returns. The CIG Dynamic Balanced Composite trailing 3-Year annualized return as of November 30, 2023, is +2.30%, net of fees, and the 3-year standard deviation is 6.6%. [x] The Balanced Benchmark’s trailing 3-year annualized return as of November 30, 2023, is +1.95% and the 3-year standard deviation is 14.2%. [xi]

You can see in the chart below that the CIG Dynamic Balanced Composite is taking less than half (46%) of the risk, as measured by the standard deviation of annualized three year returns, of the balanced benchmark [xii] and is returning 118% of the balanced benchmark’s return on a trailing 3-year annualized basis. [xiii]

At CIG, we believe in risk-balanced investing. We believe investors should consider how much risk they are taking to achieve returns. We think that we should be striving to reach the return necessary to meet the various needs of our client’s financial plans while, at this point in the market cycle, taking as little risk as possible to meet that goal. We want you to sleep at night.

Speaking of risk, let’s go back to the first chart on page one, Nvidia (NVDA). Nvidia has experienced many booms and busts over the years. The stock is currently booming, up +220% year-to-date through November 30, 2023, due to surging sales of its artificial intelligence chip. [xiv] As of December 31st, 2023, we own a small amount of Nvidia in our dynamic and strategic balanced and growth models [xv] via our iShares Semiconductor ETF SOXX holding.

We are very cautious regarding NVDA, the company has experienced two large losses in the past five years. In the fourth quarter of 2018, NVDA stock suffered a -56% drawdown in 82 days [xvi] due to the company warning about excess inventory of graphic chips for gaming. [xvii] In 2022, NVDA stock suffered a -66% drawdown in 329 days [xviii] as cancelled orders from personal computer makers and weakness in crypto mining orders negatively impacted sales and earnings. [xix]

So, what is your benchmark, an individual stock like Nvidia that fell -66% in 329 days in 2022, or an index like the S&P 500 that fell -49% from its peak on March 27, 2000, to its low On October 9, 2022?

We counsel investors to understand what they are invested in – typically a diversified portfolio – and measure their results with the appropriate diversified, blended benchmark. Life is too short to be frustrated.

If you are not a client, we are happy to review how much risk that you are taking to achieve your returns. Please reach out to Brian Lasher (blasher@cigcapitaladvisors.com), Eric T. Pratt (epratt@cigcapitaladvisors.com) or the rest of the CIG team.

This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

[i] calculated by CIG using data from finance.yahoo.com
[ii] Calculated by CIG Asset Management using data from finance.yahoo.com
[iii] The Daily Spark, published by Apollo 10/18/2023
[iv] Calculated by CIG Asset Management using data from finance.yahoo.com
[v] https://www.lseg.com/en/ftse-russell/indices/russell-us
[vi] https://www.msci.com/documents/10199/86494e1f-914e-4aa5-82a9-2e29ed5adbbf
[vii] https://www.investopedia.com/terms/l/lehmanaggregatebondindex.asp
[viii] The Magnificent 7 is a term coined by Bank of America analyst Michael Hartnett. The seven stocks are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. Calculated by CIG Asset Management as of 01/02/2024 using data from State Street Global Advisors and iShares. The S&P 500 index is represented by the SPDR S&P 500 Trust and the Russell 3000 index is represented by the iShares Russell 3000 ETF.
[ix] Calculated by CIG Asset Management using data from finance.yahoo.com
[x] Calculated by CIG Asset Management using data from Zephyr and Tamarac.
[xi] Calculated by CIG Asset Management using data from Tamarac and Zephyr
[xii] The Balanced Benchmark is a blend of 45% Russell 3000, 10% MSCI All-Country World ex US and 45% Bloomberg US Aggregate Bond indices.
[xiii] Calculated by CIG Asset Management using data from Zephyr and Tamarac
[xiv] CFRA research report dated December 8, 2023.
[xv] CIG Dynamic Growth Strategy, CIG Dynamic Balanced Strategy, CIG Strategic Growth Strategy, CIG Strategic Balanced Strategy.
[xvi] Calculated by CIG Asset Management using data from barchart.com
[xvii] https://www.cnbc.com/2018/11/16/nvidia-stock-falls-on-revenue-and-guidance-miss.html
[xviii] Calculated by CIG Asset Management using data from barchart.com
[xix] https://finance.yahoo.com/news/nvidia-stock-dropped-11-rough-231731668.html
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Safeguarding Your Wealth with Proper Asset Protection Planning

Protecting accumulated wealth should be a cornerstone of your financial plan. A solid financial plan will address who or what poses the threat of taking away what you have earned and puts measures in place to limit the severity of those threats. These threats are often unseen and not easily predictable and therefore may cause a derailment from the path to your goals if your plan is not properly structured. Do you understand what your plan has put in place for asset protection?

Risk Management

It is not easy to think about, but just imagine that today was your last day alive. Who will be there tomorrow to protect your family and the assets you leave behind? Who will replace the high amount of income that you provide? Will your current savings be enough to provide for the day-to-day basics, let alone the big expenses of the future such as college tuition? Proper planning aims to assess the capital needs of an individual and his or her family to ensure that given any unfortunate event, the family will be taken care of first. A less often considered, but nonetheless important, scenario is disability due to injury or sickness. Will you still be able to pay your mortgage, car loan or other payments? What if this disability is for an extended period of time? You must, again, ask what your financial plan has in place for the future of your family and goals.

Personal and Business Liabilities

For physicians and other highly visible professionals, the possibility of becoming the defendant in a lawsuit based on work performed or expertise given is not out of the question. How is your medical practice structured? Which of your personal assets will be exposed to liabilities? There are particular are strategies to help protect and separate your business assets from your personal assets (Domestic Asset Protection Trusts).

Estate Planning & Titling

Do your estate planning documents match your intentions? Your estate plan may be designed to leave assets to your children; however, if your accounts and assets are not titled properly, your children may not receive those assets as intended. For example, accounts titled as Joint Tenants with Rights of Survivorship, all assets will remain in the account under control of the surviving owner, regardless of the estate plan documents. It is critical that your account titling matches your estate plan documents to avoid unintended consequences.

Mistakes and Unforeseen Problems

Without proper planning, your accumulated wealth could be exposed to numerous risks. With proper planning, those risks can be mitigated. CIG Capital Advisors Wealth Management team can make sure your wealth plan accounts for unforeseen personal events (death, disability or lawsuit) as well as financial hazards that could jeopardize the assets you’ve built over a lifetime. It can take many years, often decades, of hard work to accumulate significant assets. Unfortunately, it can only take one event to erase your progress. Contact a CIG Capital Advisors professional to prepare for the unexpected.

CIG Asset Management Update April 2020: Uncharted Territory

Equity markets embarked on their own version of the much hoped-for “v” shaped economic recovery during the month of April, even as economic data continued to record nasty numbers. The S&P 500⁽¹⁾ gained +12.7%, recovering much of the prior month’s losses. Outside of the U.S., the MSCI EAFE net⁽²⁾ was up +6.5% and the MSCI Emerging Markets Index was up +9.2%⁽²⁾. Within fixed income, the Barclays U.S. Aggregate Total Return Index ⁽³⁾ returned +1.8% and the Barclays U.S. High Yield Index⁽³⁾ increased +4.5% for the month.

In April, there was a continued tug-of-war between economic reality and hopes that the worst of the pandemic may be behind us:

On Friday, April 3, it was reported that the March unemployment rate rose to 4.4%, the highest since August 2017.⁽⁴⁾ Over the following weekend, many anecdotal news stories came out, spreading hope that COVID-19 was peaking. The ensuing Monday, April 8, the S&P 500 was up +7.03% for the day⁽⁵⁾.

The weekly unemployment report on April 9 showed another 6.6 million in weekly claims⁽⁶⁾, only to be quickly forgotten about as the Federal Reserve issued a statement within seconds of the Department of Labor release. The Fed announced a $2.3 trillion relief package including the Main Street Lending Program, to lend money to mid-sized businesses, and a municipal and corporate bond buying program.  This latest Fed action put them far past anything they attempted during the 2008 Great Financial Crisis.

The April 16 weekly unemployment claims were 5.2 million⁽⁶⁾, and the following day, a report that Remdesivir, an anti-viral drug may help treat symptoms of COVID-19, was made public.

Then on April 21, West Texas Intermediate oil futures settled at a negative number – never before had that happened! The following day, President Trump tweeted that we could shoot Iran boats down in the Persian Gulf, and of course, the oil and the stock markets rallied.

On April 23, weekly unemployment claims totaled 4.4 million⁽⁶⁾. The following day, April 24, President Trump said that Apple CEO Tim Cook told him in a private conversation that he believes there will be a “v” shaped economic recovery, and markets moved higher.

April 30 weekly report brought another 3.8 million unemployed claims⁽⁶⁾. The following weekend, several states began to gradually reopen their economies.

As can be clearly seen in the above timeline, every extremely negative economic statistic that was reported in April was met soon after by either a Federal Reserve announcement, a Trump tweet or positive news stories about pandemic hopes.

No rallies are more violent than bear market rallies and seeing April produce one of the most forceful rallies in decades fits that playbook. We would argue that the markets just followed a historic playbook given historic interventions on the monetary and fiscal fronts. Warren Buffett indicated at his May shareholders’ meeting that he’s not finding places of value to invest and has announced the selling of all airline shares with the view that the impacts of the recent crisis will not magically disappear but will take time to filter through the system.

In the meantime, what is driving the performance of the S&P 500 Index? To oversimplify, it comes down to five companies; Facebook (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOGL). The acronym that most on Wall Street use is FAAMG. Year-to-date through April 30, the FAAMG stocks are up an average of +10% versus the other 495 companies in the S&P 500 down -13%⁽⁷⁾.

The performance spread between the FAAMG stocks and rest of the S&P 500 will most likely narrow over time. The lagging 495 stocks could begin to catch up with the leaders, FAAMG could start underperforming, or a combination of the two.

We have mentioned before that it’s not possible to forecast the path of the pandemic. In contrast to the above, states reopening and the massive Federal stimulus have already produced “green shoots” suggesting that the economy could begin to recover.  Starbucks announced on May 5 they planned to open 85% of its locations by the end of the week, with contactless pickup and cashless payments. Simon Properties, the country’s largest shopping mall operator, announced it would open malls as states allow it. Recent activity on the Apple map app is showing signs that driving activity is starting to rebound. We would especially like to strike an optimistic tone on that last point.

Here at CIG we continue to be proactive and nimble as we see how long this bear market rally and tug-of-war can continue.

This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

SOURCES:

1. Calculated from data obtained from Yahoo Finance, as of May 1, 2020.
2. MSCI, as of May 1, 2020
3. NEPC
4. Bureau of Labor Statistics, April 3, 2020
5. Calculated from data obtained from Yahoo Finance, as of May 1, 2020
6. United States Department of Labor.
7. FactSet, Goldman Sachs Global Investment Research

Important Client Announcement Related to COVID-19

CIG Asset Management Update February 2020: The Unknown Unknowns and Our Thoughts on COVID-19

Market volatility spiked starting at the end of February and continues today at extreme levels. Long time readers of our updates know that we have been warning about asset bubble and Central Banks’ recent actions since last year. On March 3rd, The Federal Open Market Committee (FOMC) cut the federal funds rate by 0.5 percentage points to a 1 to 1.25% range. An emergency interest rate cut between regular meetings is very rare. The last such cut was during the Great Financial Crisis (GFC) in October 2008. In fact, there have only been 7 emergency actions since October 1998. Interestingly, the FOMC took this action after only a -8.2% decline in February for the S&P 500 Total Return Index(1). Similarly other markets around the world showed “orderly” selling – the MSCI EAFE Net index of Developed Markets was down only -9.0% while Emerging Markets, as measured by the MSCI Emerging Markets Net Index, lost only -5.3% during the month(2). How have stocks performed in the past after the FOMC cuts rates unexpectedly? The answer in the table below(3) is that they tend to go lower the following 12 months. The average one year return on the S&P 500 following an emergency cut is -7.3%. The October 15, 1998 emergency cut was in reaction to a hedge fund, Long Term Capital Management (LTCM), imploding. Excluding the LTCM cut, the average one year return after the other six actions was much worse, -12.5%. On February 20 and 21, FOMC speakers were cheerleading the market and saying that no rate cuts were necessary. We must ask ourselves, why did the Federal Reserve deem it necessary to act so suddenly? Ultimately, fears intensified over the new coronavirus (COVID-19) turning into a pandemic given that the number of new cases appearing outside of China were outpacing those within China, all this without adequate testing in many places. However, we remain skeptical that monetary policy can solve the global economic issues. Amazon, Google, Facebook and Microsoft are now pushing working from home(6). All, in addition to Apple, JP Morgan, Proctor & Gamble and others, have limited employee travel(6). Major events such as the St. Patrick’s Day Parade in Dublin have been cancelled, and forthcoming cancellations will be likely, too. Corporate management teams know that they will be forgiven if they lump as much bad news as possible into the first half of 2020 whether it is COVID-19-related or not. The bad news is likely to keep coming and the economic damage may be significant. It is possible that that Central Banks can regain control as Central Banks have managed to restrain volatility for the six previous times issues arose since the GFC. However, with the VIX at 60+, they appear to be more challenged than ever post-2008. Already, Treasury yields have reached record lows in February. Accordingly, the Barclays U.S. Long Treasury Index increased 6.7% during the month(4). Market participants are now anticipating three interest rate cuts to occur in 2020(5) and in March, Treasury yields have reached unprecedented low levels! The 30-year Treasury is below 1% as we write(1). In this high volatility environment, anything is possible and we are watching the markets and economy like a hawk. The CIG-managed portfolios have benefited from being positioned for late cycle volatility since October, with the Dynamic portfolios even more so since late February. There is massive risk to the downside as well as the upside. On the plus side, we may get a global fiscal stimulus package which would in turn boost markets. In that case, markets are very oversold, meaning assets that have traded lower/ gotten cheaper have the potential for a price bounce. On the other hand, the constant subsidy of the markets and the economy has led us to a large bond and stock market bubble and very high debt levels while the Federal Reserve has left themselves with way fewer tools. We have plans for both scenarios. CIG has a robust business continuity plan to lessen any interruption to service and allow us to remain fully operational at all times. We can accommodate a fully remote staff if necessary. We believe the communication procedures that we have in place will help ensure that there is no disruption to your service. We remain committed to meeting your expectations regarding meeting attendance and recognize that some clients may prefer conference calls or videoconferencing in lieu of in-person gatherings. Finally, we are persistently following the investment markets and repercussions of COVID-19 and will continue to communicate with you when appropriate about the portfolio impact and opportunities that are created. Until then, please stay well and support your friends and neighbors. The elderly who are deeply concerned now and neighbors without alternative childcare will need our help. As long as it is advisable, please visit your service vendors like restaurants and tip generously. We also ask that you generously give to local organizations who support the needs of lower-income families who might rely on travel, retail and hospitality sources of income. They will suffer disproportionately. Even if COVID-19 burns out in the coming months, as we hope it will, the economic issues could possibly linger for some time. This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. SOURCES:  1.  Calculated from data obtained from Yahoo Finance, as of February 28, 2020. 2. MSCI, as of February 28, 2020 3.  Deutsche Bank report using Bloomberg Data 4.  NEPC 5.  https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html as of March 9, 2020. 6.  https://www.businessinsider.com/companies-asking-employees-to-work-from-home-due-to-coronavirus-2020