Tag Archives: investment strategy

Market Summary

Posted April 13, 2018 by paragon. tags:Tags: , , , , , ,
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Written by David Young, President & Founder of Paragon Wealth Management

The markets have been strong the past few years — and they have been exceptionally strong since Donald Trump was elected. Most of the strength was based on investor expectations. Specifically, that Trump’s free market policies and tax reform would benefit stock prices. As a result, last year the markets were up 10 to 20 percent depending on the market. Volatility was almost nonexistent.

The broad market hit a peak on Jan. 26, 2018. Since then, volatility has picked up significantly and the market has been acting more like its old self. Three issues are currently pushing it around.

First, valuations have been at the upper end of fair value for some time. Whenever valuations get this high, investors start looking for reasons to sell rather than buy. They tend to look at everything through a negative lens.

Second, Trump has been pushing a protectionist trade agenda and recently announced tariffs against China. Investors do not like tariffs. Throughout history, tariffs have always caused more harm than good. Every time tariff news comes out, the market sells off.

Third, tech stocks (specifically the FANG stocks, i.e. Facebook, Apple, Netflix, Google and Amazon) have been leading the market up for the last 18 months. But recently, they have had more than their share of bad news, which is causing them to put a downward pressure on the market.

Overall, excellent market fundamentals are still in place, which forces us to stay invested. However, with interest rates slowly rising, we are on “high alert” more than we have been in some time.

CHANGES AT PARAGON

If When I founded Paragon 32 years ago, it was because I couldn’t find a fiduciary firm that managed my money the way I wanted.

I had sold several businesses and needed a place to invest my hard-earned money. I met with Shearson Lehman, Smith Barney, Merrill Lynch and Northwestern Mutual, to name just a few. None fit the bill.

I wanted them to invest my money as if it were their own. I wanted to cut unnecessary investment costs wherever possible. I wanted a proactive investment manager who would adjust my account depending on whether the markets were going up, down, or sideways. I didn’t want them to passively buy an investment, hold it forever, and pray it worked out.

When I started Paragon, I was trading through Fidelity Investments. Each of my clients had to sign a limited power of attorney so I could trade their accounts. We called in our trades on land phone lines, one by one, because there was no internet.

After a few years, Charles Schwab became the leader in the newly developed RIA industry. They were at the cutting edge. We moved from Fidelity to Charles Schwab, because Schwab allowed us to provide the best technology and lowest costs to our clients.

We have been at Charles Schwab for almost 25 years and have enjoyed that working relationship. However, after an in-depth review, it is time for a change. Looking to the future, we believe making some significant changes will provide our clients with a better technology platform, lower transaction costs and outstanding client service.

We did not make this decision lightly. Moving 330+ accounts and upgrading multiple technology platforms is not my idea of a good time.

But change is always painful … in the short term. We are doing this because it will allow us to better serve you and provide you with the best technology available to trade and monitor your accounts.

TD AMERITRADE

TD Ameritrade is at the forefront of technology in the Registered Investment Advisor space. TD Ameritrade is a leader in trade execution. We have negotiated trade pricing that is either the same or one-fourth the cost of what we were paying, depending on the account. Better trade execution and lower costs ultimately lead to better investment results.

Safety and security of the accounts is of the utmost importance. TD Ameritrade is committed to delivering one of the highest levels of security in the industry and carries FDIC, SIPC and additional insurance against fraud up to $152 million per client.

ORION

In conjunction with moving to TD Ameritrade, we will also be implementing a new portfolio administration package from the industry leader, Orion. The Orion platform will cost Paragon five times more annually than our current provider, but that cost will not be passed on to our clients. Your costs will go down while ours go up. We believe you are worth it.

In addition to enhanced trade order management, cost basis, tax reporting, compliance, and RMD distributions, this state-of-the-art Orion platform will provide you with an incredible array of tools.

Each client will have an online portal, which will provide them with immediate access to accounts and performance across multiple timeframes. We will build these reports for you, as simple or as complicated as you desire. We will use an aggregator, which will allow you to view any of your bank accounts, or other financial accounts that are outside of Paragon. You will have immediate access to your accounts and a variety of reports via your smartphone, computer or through the mail — whichever you prefer.

EVEN MORE…

In an effort to provide you with the best client service, we will also be upgrading our client contact software. This industry-leading client software, known as “Wealthbox,” will allow our staff to take your already excellent service experience to the next level.

Finally, we are significantly upgrading our Financial Planning Software. The state-of-the-art software will make it easier to build and update your plan online. Your plans will be updated daily since they pull in the data data directly from your investment accounts. They will also be available online through your portal. Whether it is a Retirement Income plan, a tax estimate, a Roth Conversion, or Social Security Optimization, our hope is to make it easy for you to understand your plan, access it and update it as needed.

Our ultimate goal is to provide you with the VERY BEST in the Investment Advisor space. We are excited with these enhancements, and over the coming months, we will reach out to you as we get everything put in place.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Back To Normal?

Posted April 11, 2018 by paragon. tags:Tags: , , , ,
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Written by Nathan White, Chief Investment Officer

After a tremendous start in January (and what seemed like a continuation of 2017), the markets finally hit some long-anticipated turbulence in February and March.

The stock market had been riding a nice wave. Last quarter, I suggested it was a prudent time to review allocations and risk exposure while the markets were doing well. Now that volatility has returned, let’s review current conditions and factors, as well as future considerations.

The current economic conditions are generally considered to be exemplary of the late stage of an economic cycle. However, cycles can run longer than anticipated, and there is no way to know exactly when they will end. The effects of the fiscal stimulus are helping to extend the economic cycle, but they could also increase the potential for inflation to finally rear its head. A characteristic of a late economic cycle is where the economy continues to do well, but asset price declines or increases only moderately.

A research report from NDR (Ned Davis Research, Economics/Global Comment March 2018) indicates that two-thirds of countries are growing above their long-term growth potential, which last happened in 2000 and 2007 before major recessions. However, the dangerous threshold could still be a year or so out, and the timing can be tricky. Does this mean we are bearish? No. We are just getting cautious. There are still a lot of positives, but it is our job to investigate the risks.

Our risk models are indicating a rise in risk. Our trend and breadth models, while still bullish overall, have deteriorated. We are monitoring these closely. Equity valuations are still broadly high, but earnings are forecasted to grow nearly 20% for the year. We will be watching for changes to these results and expectations. Another characteristic of a late economic cycle is a flattening yield curve. This occurs when short-term rates exceed long-term rates. The curve has been flattening as the Federal Reserve increases interest rates, but for various reasons, long-term yields have not moved commensurately. The following graphic on the next page helps put the current environment in perspective.

Investing is a long-term game, and trying to time exits can be hazardous to returns — especially if future returns are harder to come by (i.e. lower). You will need to keep exposure to get returns. Stay invested — but be flexible in the mix of those investments.

Remember, pullbacks are a normal part of market action and create opportunities. What is not normal is the absence of pullbacks (like we experienced in 2017). The trillions of dollars — pumped into the markets by global central banks since the Financial Crisis — has smoothed out volatility and market corrections. The latter should increase as central banks begin to reverse course. Keeping interest rates so low for so long has encouraged massive borrowing at cheap rates. Corporate borrowing has surged with U.S. companies’ debt reaching their highest levels since 2000. Many companies have been able to borrow at rates and amounts that wouldn’t

have been possible in a “normal” rate environment. As rates rise, the cost of servicing this debt will increase and could expose many weak hands. This is healthy in the long-term, though, as it discourages wasteful or inefficient use of precious resources. The real question is that as credit conditions normalize, what will be the effects on markets and the economy? I believe current market conditions to be exemplary of returning to a more normal environment.

STRATEGY REVIEW

The S&P 500 ended down for the quarter, and only two of 11 S&P 500 sectors posted gains and outperformed — Technology and Consumer Discretionary. Bonds were also down for the quarter as they face an uphill battle of rising interest rates. Within TopFlight, all three of the strategies (Fundamental, Momentum, and Seasonality) were up slightly for the quarter. Some of the best performers within our Momentum strategy were Nvidia, NetApp and Micron Technology. Our small cap momentum stocks generally lagged in the first quarter but closed the gap by quite a bit in March. Within our Fundamental stocks, the best performers were Northrup Grumman, Ruths Hospitality and Eastman Chemical. After a difficult 2017, our Seasonality strategy posted a gain for the quarter as well. We continue to like the valuation position of our current stock holdings. Their collective forward P/E (price/earnings) multiple is about 14.8 versus 17.4 for the S&P 500, which is about 15% less expensive. Many of these holdings are industrial and materials companies that could benefit more from the tax cuts and possible infrastructure spending.

Our Managed Income portfolio ended the quarter slightly down, primarily due to the slide in equities. We continue to maintain about 40% of the portfolio in short-term corporate bonds, which will allow us to capture the rise in interest rates without getting hit with significant capital losses. Another 15% of the portfolio is in intermediate Treasuries. We continue to avoid long-term bonds.

Going forward, our models still indicate a reasonable case for further stock market gains, but probably not on the level of past years. Inflation trends are still positive for now, and the strong economy and earnings growth outweigh the concerns I discussed earlier. But as the risks increase and the economic cycle matures, it is important to have a more flexible approach with your investments to control risks and take advantage of opportunities. This is exactly the way we like to manage investments.

If you have questions about your allocation and risk exposure, please give us a call. We are here and happy to help.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Not What Anyone Expected

Posted January 20, 2018 by paragon. tags:Tags: , ,
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Written by David Young, President and Founder of Paragon Wealth Management

Two-thousand and seventeen was a banner year for stocks. Not just in the U.S., but around the world. Investors with a long-term perspective were rewarded once again.

It was not a good year for the market forecasters. Their primary talent is consistency — and they were consistently wrong.

At the beginning of last year, most Wall Street Strategists forecasted a gain of 4% or less for the upcoming 2017. The actual gains were five times more than those projections. Following their advice would have been disastrous.

Between U.S. tensions with North Korea, the new presidential administration, and the state of politics in America, the forecast was increased market turmoil. Instead, we saw a calm in the markets we had not seen in decades. The VIX, which is a measure of market volatility, unbelievably closed below a level of “10” more times last year than any other year in its history.

In addition, the forecasts regarding global growth and inflation were off base. If you have been a client for a while, you understand why we never invest based on market forecasts.

Successful investors, on the other hand, focused on the upbeat fundamentals. Corporate profit growth was sparked by economic gains at home and abroad. The political push to decrease regulations and effectively free the “free market,” combined with the recently passed tax plan, increased positive expectations even more.

The U.S. economy grew at 3.3% in the third quarter. That was the second quarter in a row the GDP exceeded 3% — a feat that hasn’t occurred in three years. Even more impressive, fourth quarter estimates by the NY Fed expect GDP to come in at almost 4%, which is higher than anyone previously forecast.

The S&P 500 performance reflected the strength of the economy and was positive every single month in 2017. That has not happened since 1970.

PARAGON PORTFOLIOS 

An interesting surprise with this year’s rally is how many individual investors did not benefit from it. Throughout the last nine-year surge, after the devastating market of 2008, individual investors have continuously pulled money out of funds that own U.S. stocks. Nearly $1 Trillion has been pulled out since the start of 2012, according to EPFR Global, a fund tracking firm.

From a trading perspective, this has been a difficult market. Why? When markets consistently go up they don’t require a lot of trading. They require you to be in the right place and hang on.

Additionally, straight up markets, like the one we experienced last year, create false confidence amongst investors. Many people decide they are investment geniuses. And they are … until they aren’t anymore.

Investing based on luck, without a strategy, is impossible to replicate. Since no one knows in advance when the market is going to go up, go down, or run sideways, relying on luck rather than strategy eventually catches up with investors. Just like the temporarily successful gambler, it is just a matter of time before they implode and suffer significant losses. As the saying goes, no one rings a bell at the top when it is time to sell.

And then there were Bitcoin experts this holiday season. They sought me out at seemingly every event I went to. But they had a puzzled look on their face when I asked them to explain exactly “what” it was that they were investing in, or why their Bitcoin fortune would vanish if they lost their account password.

Another axiom we dodged this year was that traditional wisdom of “sell in May and go away.” If we had done that, we would have missed significant gains between May and November. That was another obstacle that could have cut your returns by more than half. Fortunately. our models kept us invested all year.

Overall, we were pleased with our portfolios. All performed well in the context of the risk level they are invested in.

Managed Income acts as the anchor to the portfolios. As long as interest rates stay pushed to the floor, its returns will be relatively low, but still better than bank rates. On a positive note, it looks as though we may see an increase in rates this year, which should help Managed Income. Regardless, its primary purpose is to provide stability for our portfolios.

Top Flight, with all of the changes we made a year ago, performed well. If you would like more detail on the three portfolios — momentum, fundamental and seasonality — that make up Top Flight, give us a call and we will happily walk you through them.

The new Balanced Portfolio and the two Private Funds both had a strong performance this year as well.

GOING FORWARD 

Our Consumer confidence or individual optimism is the highest it has been in 17 years. Investor sentiment is also the most bullish it has been as far back as we are able to track it.

This puts us in a tricky spot. Historically, we know that as investor sentiment moves higher we are approaching a market correction. The theory is that once everyone who is going to invest is invested, there is no one left to push the market higher.

The difficulty with market sentiment as an indicator is timing — you don’t know exactly when such a correction will occur. As a result, we are also watching internal market technicals but with a more skeptical eye than normal. Trend indicators, Advance/Decline lines, Industry Breadth, etc. all still look good.

Last year we updated Top Flight with our best individual stock models. In an effort to match or exceed the returns of the broad markets, we tied Top Flight’s more directly to those broad markets than we had historically. Our belief is it is better for Top Flight to accept more short-term downside volatility so that its returns over the long term will increase.

With this year’s market strength, along with the changes we made to Top Flight last year, it is important to correctly set the amount of volatility you are willing to accept. We can effectively reduce your overall volatility by decreasing your exposure to Top Flight and increasing your exposure to our more conservative portfolios. Getting that right is one of the pillars of investment success.

If you would like to talk about how you are positioned or make any changes, please give us a call. We are always happy to hear from you. Have a great 2018!

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Calm Seas?

Posted January 10, 2018 by paragon. tags:Tags: ,
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Written by Nathan White, Chief Investment Officer

For the stock market, 2017 was a year of unprecedented smooth sailing. The S&P 500 has risen for 14 months straight, a new record. It also didn’t have a monthly decline, which has never happened before. Volatility was non-existent. The economy continues to move along with no signs of an imminent recession. Moreover, there have been no corrections in sight.

The latest global manufacturing indexes (PMIs) ended with the strongest reading in nearly seven years. Many of our forward-looking economic indicators also point to even faster growth in the coming months. New orders and export orders are at their highest levels since early 2011. The ratio of new orders to inventories matched its strongest level since June 2014. Backlogs are at the highest point since May 2010. On the back of this strong data, job growth looks set to expand further. (Source: NDR – Economics, Global Comment, 1/3/2018) 

Price pressures are strong but have not exploded, which means inflation is still modest. In 2018, we will be watching to see if the tax cuts and possible infrastructure spending will push inflation expectations higher. Interest rates are still low overall, but moving up. The bond market could become a problem in the coming year (more on that later). Other risk factors coming from our models are high equity valuations and extremely optimistic investor sentiment. Most of our models are still positive, so it remains a bull market until proven otherwise.

2017 REVIEW 

The best performing areas of the equity market last year were large-cap stocks, growth stocks and the technology sector. Small-cap and value stocks, while still up for the year, lagged the broader market. It will be interesting to see if value stocks make a comeback in 2018.

Top Flight had good performance being up 18.5% for the year. It was up about 11.9% for the last six months of the year, which was about a half percent better than the S&P 500 after fees. As you know, in 2017 we started taking individual stock holdings that comprise about 60-64% of the Top Flight portfolio. We have been pleased with the result. Our stock holdings overall averaged nearly 21.5% for the year. The stock portfolio is broken down into two segments. The first is a fundamental-based approach that focuses on stocks with the least downside risk. These stocks performed well and were up about 25.5% for the year. Considering these stocks have somewhat of a value/quality aspect, this was an impressive showing. The second segment of our stock holdings is a momentum or trend-based approach. This segment was up just shy of 18% for the year. Within this segment, the small-cap names did the best, particularly in the last half of the year. Overall, the best performing individual names were Home Depot, United Health Group, Domtar, Owens Corning, and Northrop Grumman.

Looking ahead for 2018, we like the valuation position of our equity holdings. The forward PE (price/earnings) multiple of our stock holdings is about 16.8 versus 19.8 for the S&P 500. This means our current holdings are about 15% cheaper based upon projected earnings for next year. Not a bad place to be after the significant upward move in equities.

Top Flight also includes two other strategies based on ETFs. One strategy is a seasonality approach that rotates among various sectors and industries. This strategy comprises 20-25% of Top Flight and was up about 11% for 2017. While up for the year, seasonality was our weakest performing strategy last year. However, in the prior three years it was our best performing ETF strategy. Our approach with Top Flight is to diversify by strategy. No strategy will outperform every year, and due to its solid long-term record, we still have confidence with the seasonality method. The second ETF strategy we employ is a single ETF momentum-based strategy. This strategy, which comprises 10% of Top Flight’s allocation, performed well on the year and was up over 25%. Most of this performance came from the PowerShares QQQ, which is heavily weighted in large-cap technology.

On the conservative side, our Managed Income portfolio had a net return of about three percent. Still not ideal, but we are constrained by the environment of low yields. We achieved similar returns to our benchmark, but with a lot less risk to rising interest rates. To get a higher return, we would have had to load up on risky debt, which would have only produced an additional 1-2% return. Not worth it in our estimation. We still do not recommend long-term bonds. The bond market is getting backed into a corner. As interest rates rose last year, it was short-term rates that moved up while the yields on longer maturity bonds didn’t move (or went down slightly). The difference in yield between the two and 10-year Treasury bonds is now only about a half percent. The Federal Reserve is set to raise interest rates another 0.75% to 1% next year. If longer maturity bond yields do not start going up, it won’t take long for short-term bond yields to exceed them. This is called an inverted yield curve and is often a harbinger of recession. If longer maturity bond yields do move up with the Federal Reserve actions, then 10-year Treasury could lose at least 5%, and longer maturities 15% or more. Because of these dynamics in the bond market, we are not as exposed to interest rate risk as most bond portfolios. We don’t hold any maturities longer than 10 years and the Treasuries we do hold are a hedge against any possible stock market correction. Keeping most of our fixed income exposure to shorter-term maturities allows us to increase our yields as interest rates rise without getting hit with significant capital losses.

MAKE HAY WHILE THE SUN SHINES 

The roaring stock market offers investors an opportunity to review their asset allocation. Now is the time to rebalance — not when the inexorable correction comes. Most have the tendency to put money into whatever has been doing well. To keep the proper risk exposure, investors should trim their exposure to stocks as stocks increase. One of my favorite axioms is to take what the markets give you, but unfortunately, investors have short memories. The increase in the stock market has simultaneously increased allocation to stocks. When the correction occurs, those who have not re-allocated will take a bigger hit to their portfolios than they can actually stomach. Please contact us if you would like to re-view your allocation.

We appreciate your trust and business and wish you a prosperous and happy 2018!

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Mid-Year Review And Outlook

Posted July 12, 2017 by paragon. tags:Tags: , , , ,
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Written by Nathan White, Chief Investment Officer

Volatility in the equity and bond markets has been at historic lows. The economy has been strong enough to support stocks, but not too strong to disturb bonds. While still on the expensive side, equity markets are being sustained by growing earnings. They are also still anticipating an increase in economic growth based on upcoming fiscal and policy measures. If the intended reforms keep getting delayed, it could result in a return of volatility in the second half of the year.

Global growth has been improving, and so far looks to be around 3.4% for the year compared with 2.3% for the U.S. As growth in places like Europe has improved, the ECB is setting up to follow the Fed’s footsteps in tapering its extremely accommodative monetary stance. Central banks are becoming more hawkish and could be worried about financial stability. That means they need to keep/start tightening to stay ahead of any issues and build up their ammunition. But for now, asset prices keep improving in this low inflation environment.

Recently there have been indications that the leaders of the first half of the year seem to be overdone. Whether it is simply profit taking or an outright rotation remains to be seen. We could see a churning process throughout the summer as the market tries to digest the first half gains and anticipate the environment and factors that will affect the second half of the year. For now, 75% of industries are still in uptrends. The majority of our models are bullish, but we have seen deterioration in some areas. We would like to see a broader advance across all segments rather than just the narrow leadership that has occurred. Our sentiment models are flashing caution, as they are in the overly optimistic zone. Earnings growth must continue in order to support current high valuations in the face of rising bonds yields.

Growth names doing well in a low economic growth enviroment? 

On the face of it, you would think growth stocks would do better in a high-growth environment, as opposed to the current moderate economic growth conditions. Well, markets aren’t always logical. As the stocks that benefitted from the Trump rally stalled along with his reform agenda, growth stocks took over and became first half leaders. Sectors such as Technology and Healthcare have been the best performers. In an environment of moderate growth, investors placed a premium on names that are currently growing. Much of the focus was concentrated in large mega-cap names such as Facebook, Apple, Amazon, Microsoft, and Google. These five names accounted for about one third of the S&P 500’s year-to-date gain. They are basically defensive names in a low-growth environment. Our exposure to these names has accounted for most of TopFlight’s gains as well.

Our seasonality model, which has performed well the last few years, was a laggard in the first half of the year. The energy sector tends to dominate this model in the first half of a year, but energy stocks have been poor performers due to the drop in oil prices. Seasonality signals are not high conviction through summer months. Small-cap stocks have also been trailing large-cap stocks, as they are more economically sensitive. We have observed this in our small cap momentum stocks as well.

Outlook for the second half of the year 

If a rotation out of the first half leaders develops, we could see a move from growth into value. This would better benefit the energy and financials relative to the technology and large cap growth names. We have had a slant toward value and small-cap in the first half of the year. These stocks will potentially benefit from a shift of growth to value in the second half of the year. We will keep exposure to the high-flying names for now, but want to keep exposure to the value names that have lagged, as they could benefit from a rotation in the second half of the year. If the Trump agenda gets close to becoming reality again, then our small-cap and value exposure could take off.

With oil breaking down, it creates an opportunity in the energy names. Sentiment on the sector is extremely low, and large financial traders drive oil prices in the short run. In the end, low prices are the cure for low prices in commodities. We don’t know where the bottom will be, but are watching this sector for potential plays in the stronger names.

Managed Income 

Interest rates are slowly heading higher. The Fed has raised rates twice this year and is indicating one more increase later in the year and additional ones next year. The Fed also announced it will start to reduce its massive holdings later this year. This will put pressure on bond prices — warranting caution with one’s bond exposure. We still do not recommend buying long maturity bonds, especially as yields have fallen. The extremely low yields are still not worth the risk of owning at these elevated prices. However, we are still in a waiting game until we can lock in higher yields. We have a significant amount of capital to deploy, and we want to wait for a more favorable environment. As yields have come down on longer maturity bonds, they have moved higher for short-term bonds due to the Fed raising rates. A flatter yield curve calls for shifting into cash rather than bonds. We favor short-term corporate bonds where the yields have moved up but the prices have not. We only want to use Treasury bonds as protection as opposed to an outright investment.

We are watching some oversold names in the REIT and telecom space. For example, in the heavily damaged retail space, Tanger Factory Outlet Center (SKT) is looking attractive. With its modern stores and attractive locations, it has been drawing customers away from traditional malls. Its retail tenants comprise unique desired brands along with a discount aspect enabling Tanger to boast a 95% occupancy level. The stock also has a 5.2% yield.

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Put The Odds In Your Favor

Posted November 4, 2015 by paragon. tags:Tags: , ,
Stock Market Graph

Written by Nate White, Chief Investment Officer of Paragon Wealth Management

This article is from Paragon’s Third Quarter Newsletter. If you are interested in receiving a free printed copy of Paragon’s Quarterly Newsletter, please click here.

Investing encompasses two of the most powerful human emotions — fear and greed. In light of the recent market volatility, your biggest fear, without a doubt, is losing money. No one likes to see account values go down. So how much should you worry about losing money with your investments? And how valid is that fear when viewed through a historical lens?

We all know investing is a long-term process. I would take that one step further and propose that the main risk is not being invested. And history proves it.

Fear of the downside prevents people from investing correctly. When markets become volatile or economic fear increases, the apprehension is over values dropping in the present moment. Often the fear is that the values will drop and never come back. No one ever wants to see their accounts drop by 20 or 50 percent — and then never recover. But when in the history of the markets have they ever not come back? Never. Even still, it is amazing to hear this irrational concern over and over and over again.

When markets drop, many people sell out or change to a more conservative allocation, thereby effectively locking in their losses. When someone sells out as the market is going down, they rarely get back in at a lower price. If you sell out when the market is down 5 or 10 percent, when do you intend to get back in? When the market is down 15 to 20 percent? Usually the fears that cause someone to sell do not subside before the market rebounds (and it often become worse). By the time the waters have calmed and the investor’s confidence has returned, the market has moved higher than the point from which they sold.

In fact, if someone doesn’t recover from a market downturn, it is usually because their allocation was overly risky going into the downturn or they changed to a conservative allocation during the slide. It’s not because the markets didn’t recover. For example, if you were overloaded on tech stocks or financials before their respective crashes in the previous decade, you probably had a hard time recovering. People tend to load up on the “hot” things during boom times only to get sorely disappointed when those assets come back down to earth.

Now back to my claim that the real risk is in not being invested. Long-term risks are always harder to confront rationally because they are not immediate concerns. In order to help overcome the fear of the market’s downside, please consider the accompanying table. It displays the historical probabilities of a profit in various timeframes for stocks (S&P 500), 10-year Treasury bonds and a mix of 20% stocks and 80% bonds from 1928 through 2014. The stock market’s chances of being up in a single year have been over 70% — and it only gets better the longer you hold. There has never been a 20-year (and nearly a 15-year) period where stocks have been down. Most people entering retirement today have more than 20 years of “investable” time. Now, I’m not recommending a 100% stocks portfolio for retirees, but the principle remains strong.

For those who are more risk averse or require a more stable portfolio, look at the figures in the 20/80 mix of stocks and bonds. It is better than even a portfolio of pure Treasury bonds in that it has had a better average annual return (6.3% vs. 5.0%) for the same amount of downside risk. This portfolio had only two negative three-year periods out of 85 occurrences and has never had a negative five-year period. Talk about putting the odds in your favor!

Not one of us has control over the market, but we do have control over letting time work in our favor. This table shows that negative periods are in such an impressive minority that they should be looked upon as opportunities — or at least ignored from an investing standpoint. Not many people wanted to invest during the 2008-2009 financial crisis — and I get it. The headlines were scary and it seemed as though the economy might collapse. But in hindsight, it was a great buying opportunity very few took advantage of.

There will always be things to worry about — and today is no exception. Consider that the period covered in the above review included the worst World War ever, a Great Depression and 12 recessions, the Cold War, numerous other wars and conflicts, oil shocks, inflation shocks, strong and weak dollar periods, debt bubbles, fiscal crises, various housing booms and busts, technology booms and busts, and both Republicans and Democrats. Despite all these hazards, the markets have moved up, reflecting the virtues of a free market and providing an effective method for investors to build their wealth. Don’t be left out!

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Market Mayhem

Posted October 28, 2015 by paragon. tags:Tags: , , , ,
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Written By Dave Young, President and Founder of Paragon Wealth Management

This article is from Paragon’s Third Quarter Newsletter.  If you are interested in receiving a free printed copy of Paragon’s Newsletter, please click here

It’s been a difficult three months. From July through September, investors worldwide faced a market with vicious volatility and the worst performance we have seen in four years. As a group, hedge funds posted their worst performances since 2008.

Prior to this, the benchmark S&P 500 had gone 44 months without suffering an official correction, which is defined as a decline of 10% from its high. That streak ended on Aug. 24 when the index was hit with an intraday plunge of 1,100 points.

It is interesting to note that while the S&P 500 index itself declined — 12.4% from its highs — just over half of the stocks that make up that index were actually down more than 20%. This disparity shows the actual breadth of the decline.

Most indexes and asset classes were down for the quarter. The large cap stocks of the S&P 500 were actually a bright spot — only losing -6.9%. The NASDAQ was down -7.3%, U.S. Small caps lost -11.9%.

The international EAFE index lost -9%, while the emerging market index declined -12.1%. The broad-based GSCI commodity index lost -18.5%. Australia was down -15%, Canada -20%, Singapore -19.5%, China -22.7%, and Brazil -33.6%.  Gold mining companies lost 25% and silver miners lost 28%.

Why The Drama?

Last quarter, we were wrapping up our annual Greek drama. This quarter, the worry shifted to China. China’s stock market languished for much of the decade, but with encouragement from government officials, the Shanghai Composite Index went up 152% from June 30, 2014, to its peak on June 12, 2015. It is amazing what impact government meddling can have.

It was a meteoric rise by any standard, with a buying frenzy fueled by margin debt. But the index quickly shed 32% of its value in less than one month, forcing the government to implement additional measures to stem the decline.

China is the world’s second largest economy, and its growth rate has been slowing. Although China officially announced that Q2 GDP expanded by 7.0% in Q2, few believe the official report.

The most immediate impact has been on the emerging market currencies, which are grappling with a China slowdown and a possible Fed rate hike.

In addition, China surprised markets by devaluating its currency on Aug. 11 by about 3%. China’s central bank billed the surprise announcement as a market-oriented reform and a one-time move. Almost everyone else viewed it as an attempt to shore up their sagging economy by increasing their exports.

The Federal Reserve is also being blamed for the sell-off. In late July and early August, markets seemed resigned to the idea the Fed was set to boost rates at its Sept. 17 meeting. When they didn’t raise rates, it led to a circular argument as to whether that was positive or negative for the markets — which ultimately led to more uncertainty.

In my opinion, Greece, China and the Fed were just excuses for a sell off. In reality, we were in the seventh year of a bull market that was overdue for a correction.

The U.S. economy is doing OK — but not great. More importantly, market internals have been deteriorating. Valuations have been hitting the upper end of fair value. Earnings growth has slowed. And the weakness in the energy sector and the stronger dollar have both provided headwinds for the market.

Paragon Portfolios

We ended last quarter’s newsletter by saying, “We cannot see into the future.  However, as of today, (June 30), we are conservatively positioned. Based on our indicators, it would make sense that the market may continue to move sideways or that we could see a 15% to 20% decline from these prices. Our expectation is that this may play out over the next three months.”

As a result of our defensive positioning, we were able to avoid most of the carnage.

Managed Income Portfolio, our conservative portfolio, generates returns three ways.

First, Managed Income captures yield whenever available from government and corporate bonds. With interest rates being held down by the FED, most bond investments haven’t made much sense for some time. The risk-to-reward ratio for bonds is upside down and will stay that way until interest rates reset higher.

Second, Managed Income generates returns from several less risky, equity income oriented asset classes. Those are high-yield bonds, utilities, real estate, convertible and preferred stocks, MLPs, closed-end funds and some equities. The current sell-off temporarily eliminated most of these options because the market was so weak. This will likely change when the equity markets start to recover.

Third, for a very limited portion of the portfolio, Managed Income generates returns from select equity positions. Those opportunities have not been available with the market in a downtrend.

Managed Income is down -3.4% year to date. The portfolio generated a compound annual return of 5.09% from its inception Oct. 1, 2001, through Sept. 30, 2015. Its total return for that period is 100.4%.

Top Flight Portfolio is our flagship growth-oriented portfolio. Considering the difficult quarter we have just been through, we are very pleased with its performance.

This portfolio is driven by two sets of models. The first group is made up of eight primary models, each of which is either on a buy or sell signal. These models measure price momentum, volume, advance decline ratios, sentiment and a host of other market indicators. These models took us to a 50% invested status about four months ago.

The second group of models provides a ranking system, which rates about 100 asset classes. These asset classes give us potential exposure to almost every investment category available. That rotation between asset classes also helped our performance.

Top Flight is only down -0.46% year to date. Its compound annual return is 11.45% from Jan. 1, 1998, through Sept. 30, 2015. Its Total Return for that period is 584.7% versus 174.7% for the S&P 500. (See our track record page for appropriate disclosures.)

Going Forward

The good news is there can be advantageous opportunities created by the sell-off. We will work to capitalize on them as they become available.

When the market stabilizes and the potential reward justifies the risk, we will re-enter our investment positions. We do not attempt to forecast; we only react to what the market is actually doing at the time. We will continue to follow our models.

Successful investing is about playing offense and defense — each at the right time — and keeping a long-term perspective. Patience is key.

We appreciate your confidence in us. Feel free to reach out to us if you have any questions or concerns.

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

Flexibility First

Posted August 4, 2015 by paragon. tags:Tags: , , , ,
NYSE building with flag_opt

Written by Nathan White, Chief Investment Officer

As the year has progressed, we’ve voiced concerns about both the bond and stock markets — and the need to stay flexible. We have moved our portfolios into a more defensive stance to protect against the current risks and to take advantage of any increases in volatility. While we are not outright bearish, we are seeing signs for caution.

Our investment strategy is a dual-model approach that uses various models to determine what assets to invest in and what our overall exposure to those assets should be. We analyze investments in a risk/reward framework that seeks to diversify by strategy in addition to traditional asset class diversification. Our focus on risk management is a crucial element in creating the robust portfolios our clients want.

The inputs we use on the models, which determine our overall exposure to the markets, cover a variety of factors. These include economic, valuation, monetary, market internals and sentiment factors.

ECONOMIC FACTORS 

The economic factors we use cover a wide range of measures that assess the current and future strength of the economy. They include measures such as the Leading Economic Indicators (LEI), which is comprised of 10 components designed to signal peaks and troughs in the business cycle. The U.S. LEI increased sharply in May after a somewhat weaker first quarter, indicating that the economy is returning back to a moderate growth trajectory for the second half of the year. The employment picture looks good as the economy has been enjoying full employment and climbing wages. Other key economic indicators have been weaker than expected, again confirming a rebound back to the range of 2.5 percent GDP growth. However, the continued pace of moderate economic growth should keep inflation below 2 percent. Overall, economic growth is mildly bullish as it is neither too strong nor too weak.

VALUATION FACTORS 

The valuation factors we follow are signaling caution. While valuation is not a favored timing method from our point of view, we do like to use it in context to help gauge risk. High valuations can be risky, as they indicate good news (which is then reflected in prices). Any disappointment can lead to painful readjustment, similar to what occurred after the tech boom in the late ‘90s. However, stocks can stay overvalued and undervalued for long periods of time, making valuations a difficult timing measure for stocks. The S&P 500 is currently trading with a price/earnings (P/E) multiple of about 19 times trailing earnings. Historically, this is on the high side, but not extremely so as the average is around 16 to 17. Low interest rates are also a boost to higher valuation levels as they support lower costs of capital for companies.

Going forward, with interest rates at rock-bottom levels, it can be difficult to support high valuation levels without an increase in economic growth and corporate profits. Since 1981, the median P/E for stocks has been 19.3 and the current reading is 24.9 (source: NDR as of 5/31/2015). This means that valuations are higher across the board today, relative to a narrower index such as the S&P 500. Profit margins are also at the high end, as companies have been become efficient at lowering costs to boost profits over the past six years. To grow from this point, companies will have to add capacity, which increases costs.

In fact, some of the most overvalued areas of the market are in areas usually thought of as the safest — the highest dividend yielders. High valuations are often associated with fast-growing companies like high-flying tech companies. While that’s probably true in the case of social media and biotech companies, it is interesting that what is generally a more conservative area is now an expensive one. The median forward P/E of the S&P 500 dividend high yielders is 17.33, compared to an average of about 12 since 1983. The cause for overvaluation in this area is the Federal Reserve’s unprecedented zero-interest-rate policy. With interest rates so low, investors have been driving up the prices of dividend yielding stocks. We have been very cautious of the risk of bonds and bond-like proxies such as these. With rates so low — and now set to rise — these areas have ironically become some of the riskiest areas for investors. Since the financial crisis, we have seen many investors in the search for safety and income buying stocks based upon the “stated” yield (i.e. yield chasers). At these valuations, it doesn’t take much movement to wipe out a 2 to 4 percent yearly dividend — something that could be realized in the next few years by holders of these stocks.

MONETARY FACTORS 

Monetary factors such as the level of nominal and real interest rates and overall Central Bank policy are also inputs of our models. Overall, the monetary factors we follow are neutral. While the Fed has ended its massive Quantitative Easing program and is set to raise interest rates as early as September, it is still accommodative overall. The Fed has made it clear that the path of interest rate increases will be low and slow. They have also not given a timetable for when they will start to unwind their massive balance sheet. The Fed says it will be data dependent, but every time the criteria has been met, they have come up with a new metric and put off increasing rates.

LOOKING FORWARD 

I have likened the current state of the markets to an adjustment period ahead of the Fed’s normalization of rates and the current stage of the economic cycle. Equities could continue to be range bound as markets price in the factors discussed above, in addition to the Greece/European issues. At this point, stocks are boxed in because if economic growth accelerates, it will aggravate cost pressures and interest rates, thereby capping profit growth. Conversely, if economic growth gets weaker and the Fed holds off on rate hikes, sales will be inadequate to drive earnings growth. At this point, easy choices are a thing of the past, so we are avoiding an all-in or all-out approach. We are prepared for more volatility and hope to take advantage of the coming opportunities.

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

It’s Time to Enjoy Your Retirement

Posted July 21, 2011 by admin. tags:Tags: , , ,
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COMPLIMENTARY RETIREMENT ANALYSIS
From now until Sept. 1, we are offering our blog readers a complimentary retirement analysis. Contact us at 800-748-4451 to schedule a meeting in person or over the phone with one of our wealth managers to get a second opinion on your retirement plan to see if it is aligned with your goals and investment strategies.

IT’S TIME TO ENJOY YOUR RETIREMENT

Written by Dave Young, President of Paragon Wealth Management
Taken from Paragon’s 2Qtr 2011 print newsletter 

Retirement Should be Enjoyable, Right?

If you are retired, it is important to stay focused on the purpose of retirement. What is your goal? Retirement should be a time that is enjoyable and relatively stress free. You should be able to spend your time doing the thngs you have always wanted to do such as travel, provide service, and enjoy your relationships with those close to you.

Your list of daily activities should not include checking CNBC and being worried about the financial markets. You should not worry when the markets go down or feel euphoric when they go up. You should not care what they do because you have other things to keep you busy. Investing according to your risk tolerance will help you do this.

When you are invested properly you should be completely comfortable with your investments. If you feel anxious or concerned about them, you should consider lowering the level of risk in your portfolio. You are probably invested correctly when you do not care what the market does on a day-to-day basis.

While it is impossible to have a completely stress-free experience, it is possible to reduce stress significantly by building a portfolio that is aligned with your specific risk tolerance. Your risk tolerance determines how aggressive or conservative you are invested. Your particular mix might be 20 percent conservative and 80 percent growth, 50/50, 70/30 or some other combination. It is different for each person. It depends on your individual goals and objectives and what you are comfortable with.

You cannot control world events or the “Big Scary” issues that are announced each day on the news. While there are a lot of things in life you cannot control, the key is to figure out what you can control and focus on that.

At Paragon, we can help you with the things you can control, such as having your portfolio managed in a way that is as conductive to your retirement goals as possible. We can also help you set your risk tolerance properly in order to reduce stress. Every investor has an amount of risk they are comfortable with. Let us help you make your retirement as stress free as possible.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.  

A Seesaw Market?

Posted October 14, 2010 by admin. tags:Tags: , , , , , ,
Seesaw stock market

 

Photo by Hoyasmeg
 

Written by Dave Young, President of Paragon Wealth Management
As seen in Paragon’s 3Qtr 2010 Print Newsletter

September is known as the worst month to be in the stock market.
At the end of August, many media outlets and TV talking heads ran stories about how bad this September would likely be. Investors moved money into bonds and gold and avoided stocks. Some of our clients called and asked to be taken out of the market purely because it was September.

What did the market do? Of course, it did what it had to do in order to cause the most grief to the majority. Since everyone expected it to go down… it went up. In short, we just had the strongest September since 1939. The S&P 500 gained nine percent for the month. Unfortunately, because of outflows into bonds and gold, many investors did not participate in the stock rally.

Overall, it was a seesaw quarter.

The markets were up sharply in July, down sharply in August and then up even harder in September. The back and forth movement has been more difficult than usual this year with the S&P 500 either gaining or losing at least four percent in each of the last five months.

Those extreme up and down swings make our life much more complicated. When the markets are weakening, we make adjustments to protect ourselves. When they are strengthening, we make adjustments to prepare for upside movement. We have been stuck in this back and forth no man’s land since April.

We prefer trending markets. Either trend up or trend down, but just be consistent.

When the market is trending, it allows us to capitalize on the trend and ride it as long as it lasts. When it is whipsawing back and forth, we are forced to make constant adjustments, but it is difficult to make progress.  Effectively capitalizing on the trend is how we have significantly beaten the S&P 500 historically.

So far, this year’s market action reminds me of 1994. The good news is that markets never swing back and forth like this forever. Eventually, they break out and move in one direction.

MANAGED INCOME AND TOP FLIGHT PERFORMANCE

Our conservative portfolio, Managed Income, has done well for the first three quarters of this year with a 4.8 percent return, net of fees. This has been a very challenging year for our conservative portfolio. With interest rates at extreme lows, it has been difficult to generate safe returns and still avoid the potential danger posed by increasing interest rates.

You might be wondering why potentially increasing interest rates are such a problem. If interest rates go up one percent, then a 10 year maturity bond will lose about 10 percent of its value. Likewise, an increase of two percent would create about a 20 percent loss and an increase of three percent would create about a 30 percent loss.

With interest rates at all time lows, many supposedly safe bonds are really ticking time bombs.

Investors have been piling into bonds in a big way. Since the start of 2009 investors have put a net $620 billion into bond funds while they have withdrawn $100 billion from stock funds. When rates do eventually go up, investors who ran to bonds for safety will be surprised to find themselves saddled with big losses they thought they were immune to.

Most conservative funds simply buy and hold bonds. Those types of funds will likely get hurt when rates go up. In contrast, Managed Income attempts to own bonds when they have favorable risk/reward characteristics and avoid them when they are unfavorable. That is why this has been a challenging environment for Managed Income. We have been forced to pull returns from other conservative areas while avoiding the majority of corporate and treasury bonds. Managed Income has performed well year-to-date.

Our growth portfolio, Top Flight, has had challenges as well. It is at a virtual breakeven for the year, with a -0.4 percent return year-to-date. Its benchmark, the S&P 500, is up 3.9 percent year-to-date. Most of that lag in performance can be attributed to difficulty in two months, January and July. If you break it down further, it is the back and forth whipsaw characteristic of this year’s market that has made it difficult.

We have spent a lot of the year adjusting and changing direction, right before the market reverses direction.

 As I mentioned earlier, at some point the choppiness usually ends and the trending begins. Unfortunately, we aren’t notified in advance when that will be. That is why we are forced to constantly adjust so that we will be in position to capitalize on the change in trend when it occurs.

Even though Top Flight has slightly underperformed through the third quarter,  we are not terribly concerned. Looking at the big picture, Top Flight has beaten the S&P 500 over the past three, five, seven, 10 and 12 year time frames (see complete track record and disclosures on Paragon’s website, www.paragonwealth.com).

To be continued next week…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from other sources Paragon believes this to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

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