Market Update, July 2016

James Pope |

DIS and DAT - Market Update, July 2016

The ultimate authority must always rest with the individual's own reason and critical analysis.
~Dalai Lama

 Performance review by the numbers

We begin by reviewing past performance of broad areas, which is not indicative of future results.

Index                                  Y-T-D                    1 Year               5 year(annualized)

SP 500                                3.81%                    3.25%                   12.10%

SP 500 Value                      6.14%                    2.72%                    11.18%

SP 500 Growth                   1.48%                   3.43%                    12.92%

Russell 2000 Growth        (1.51)%                (10.88)%                    8.51%

Russell 2000 Value              6.09%                   (2.83)%                   8.15%

Aggregate Bond                   5.30%                    6.41%                    3.76%

MSCI EAFE                        (4.35)%                 (10.83)%                 1.68%

Gold                                     24.20%                   13.08%                 (2.58)%

XOM                                    22.16%                   16.20%                 5.50%

Commodities                         9.16%                   (24.71)%               (14.03)%

SOURCE: Yahoo Finance, – As of 6/30/2016


Fundamental review

     Turning to a review of the general investment fundamentals we find that, according to the Bureau of Labor Statistics ( the core (ex food and energy) inflation rate increased 2.2% and the headline increased 1.0% for 12 months ending May. While energy continues to weigh on the headline number over the past 12 months, energy costs have increased in the last 3 months. The five year average inflation rate is 1.23%.  For purposes of analysis, we will use 2.0% inflation as the core inflation rate continues to stay around 2%. From Value line selection and opinion (, the 90 day T-bill yield has creeped up to 0.27% from 0.20% where it ended the 1st quarter. “A” rated industrial corporate bond yields fell another 22 basis points, as yields fell across the board. The 10 year minus 2 year treasury yield spread continued to flatten and is now below 1%. The JP Morgan guide to the markets, reports that the SP500 index of stocks had a return on equity of 15.7%, and a price to book value of 2.6.  Currently, SP500 has an earnings yield of 6% and the 10 year treasury yields 1.49%.

Thoughts and comments on asset classes

     The 2nd quarter was highlighted by the “Brexit” vote, where Britain voted to exit the European Union. The historic vote, first country to leave the EU, caused global turmoil across all financial markets and all asset classes. The SP500 fell 6% in 2 days, the 10-year treasury hit its lowest level ever, and the British Pound fell to 31-year lows. With pressure on Central Banks to keep rates low or even negative, to battle the unknown consequences of the “Brexit”, your typical interest rate sensitive sectors rallied as investors around the world search for yield. Utilities and Telecoms are each up over 20%, while Financials are the worst performing S&P sector, down 3% year-to-date. Utilities now have a higher trailing P/E than the growth-oriented Tech sector. It seems investors are willing to pay anything for some income. International Developed Markets continue to underperform US equities behind weakness in Europe and Japan and a strong US Dollar.

     The reach for yield has not only been an equities story so far in 2016. The highest yielding sectors of the Fixed Income asset class, Emerging Market and High Yield bonds, have been the best year-to-date performers. The flattening of the treasury yield curve continues as investors are flocking to longer dated maturities with no regards to inflation. The real 10-year treasury yield (nominal yield minus inflation) now sits at -0.75%. Even the 30-year Treasury bond’s real yield is a paltry 0.06%. As an investor, there are only two outcomes where investing into this low of a treasury rate makes sense: falling inflation/deflation and yields falling even more. With yields at historic lows and relatively low inflation rates, I believe investors can be treated better elsewhere.

     While Commodities had a strong 2nd quarter, this was coming off 18-year lows hit in the 1st quarter of 2016. Ag, Energy, and Precious Metals were all up double digits, as Gold broke above $1,250/oz and oil finally saw $50/barrel. The strong US Dollar continues to be a headwind for most commodities, while the flight to safety amidst global economic uncertainty is giving a bid to Gold.

     We are currently in a tough investing environment. You have stocks at all-time highs and yields at all-time lows, therefore bonds at all-time highs, which begs the question what are investors to do? It is easy to get caught up in all the excitement on the soap box of new highs, new highs, but we believe one should focus on the risks first, while being patient and selective when making investments.

Corporate Updates

                This section highlights a few updates from the companies we have been watching this quarter.

Synacor – Signed a mutli-year portal services agreement with AT&T, which is expected to reach approximately $100 million of annual revenues after full deployment. 2015 company-wide revenues were $110 million

Microsoft – Reached agreement to purchase professional networking company LinkedIn for $26.2B, or $196/share in cash.

Apollo Education – Investors increased buyout offer to $10/share, up from $9.50. Shareholders voted in favor of deal, which is expected to be completed by year-end. Still subject to regulatory conditions and approvals.

Green Dot  – Steve Streit survived Harvest Capital’s proxy battle to have him removed as CEO but the company did split the Chairman and CEO roles. Harvest Capital nominees won two board seats

We appreciate your time and will talk to you again soon,

Reggie McFadden, CFA 


Please remember to contact Diversified Investment Strategies, LLC dba Advisor.Investments, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Diversified Investment Strategies, LLC DBA Advisor.Investments to effect any specific transactions for your account.  A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available upon request.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Diversified Investment Strategies, LLC dba Advisor.Investments), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Diversified Investment Strategies, LLC dba Advisor.Investments.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Diversified Investment Strategies, LLC DBA Advisor.Investments is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  If you are a Diversified Investment Strategies, LLC dba Advisor. Investments client, please remember to contact Diversified Investment Strategies, LLC dba Advisor.Investments, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Diversified Investment Strategies, LLC dba Advisor.Investments current written disclosure statement discussing our advisory services and fees is available upon request.

Advisory Services through Advisor.Investments • A doing business as name of Diversified Investment Strategies, LLC, an SEC Registered Investment Advisor • Insurance Services through Advisor.Investments

Main Office and Mailing Address:  11939 Bricksome Avenue, Baton Rouge, LA 70816

Voice: (225) 292-0687 ~ Fax: (225)292-0006 ~ Toll Free: (866) 748-0687

Performance Disclosures

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. (JPM: Guide to the Markets)

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index (JPM: Guide to the Markets)

The Russell 2000 Growth Index® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. (JPM: Guide to the Markets)

The Russell 2000 Value Index® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. (JPM: Guide to the Markets)

The MSCI®EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America. (JPM: Guide to the Markets)

The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. (JPM: Guide to the Markets)

The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents 22 separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. (JPM: Guide to the Markets)

The spot price for gold bullion is determined by market forces in the 24-hour global over-the-counter (OTC) market for gold. The OTC market accounts for most global gold trading, and prices quoted reflect the information available to the market at any given time. (Ishares) 

XOM is the common stock symbol of ExxonMobil Corporation that trades on the exchange