September 2, 2008
The Second Half of The Year Brings Two New Products to The Hepburn Family of Companies.
We’ve been moving into some exciting territory in the recent months. Most notably, we’re in the process of launching two new products: The Kid’s Fund – a new mutual fund designed to give parents a sound investment tool for educating children about money – and the Children’s 100 Index of stocks. These are companies that kids already know and love.
I will be choosing the core holdings for the fund from The Children’s 100 Index, developed by our sister organization, Hepburn Investment Research. The index contains 100 stocks that have well-known products or services for children and that have been screened to eliminate significant revenues from alcohol, tobacco, gambling and weapons manufacturing. We want a portfolio that is clearly appropriate for children.
The Kid’s Fund website will have plenty of games and exercises that can teach kids about money – all designed to give parents the tools they need to instill a legacy of savings in their children.
The fund is currently in registration with the SEC and can be offered to the public for the first time in November. I will keep you posted on the progress of these two exciting products as it occurs.
If you’re interested in learning more about either of these exciting new offerings, feel free to give us a call at 928-778-4000.
We’ve Got a New Voice on The Telephone
Hepburn Capital welcomes Erica Ryberg to the team. She’ll be doing in-house PR and marketing for HCM, The Kid’s Fund and the Children’s Index. Erica is a Prescott native and an alumna of the news magazine Read It Here. She’s published many local and national articles, and has written countless press releases and marketing pieces in her career. Erica’s top-notch writing has brought her clients to national attention; we’re looking forward to her doing the same for HCM.
My wife Cathleen says Erica definitely passes the HCM phone quality test, so be sure to welcome her when you hear that new voice on our phones.
Just Saying No to Commissions!!
For you managed account clients it will be business as usual. You have been fee based all along. For commissioned accounts there will be some changes. In the next couple of weeks, I will send you a letter explaining the transition along with any paperwork that may be needed.
The Dollar Turns Up
The dollar may have finally bottomed. After several months of moving sideways, it has now turned up in a significant manner for the first time in 3 years. If the previous downtrend has indeed reversed, this should lead to lower commodity prices (think gas and food) and therefore positive implications for inflation, too.
The value of the dollar is difficult to measure exactly, because it can be compared to so many things. What I am referring to is a common yardstick, the value of the dollar versus a basket of major currencies from around the world.
What drives the value of a currency like the dollar? Supply and demand.
If you want to buy a product or service in another country, you first have to buy their currency to pay for your purchase. Even to put your money in a foreign bank to get higher interest rates than we have here requires you to first buy the local currency.
What the value of the dollar is telling us is that more people are moving money into the US than out of it. These folks are either buying or investing here more now than before, and they need dollars to do that. The demand for dollars is up.
I’m a believer that capitalism is the purest form of democracy. People vote with their money every time they spend or invest. They put money wherever they think they will get the most in return.
So what are they getting from the US right now? Safety! Despite economic problems in real estate and mortgage lending, our economy is functioning better than most around the world. Despite big losses over the past year, our stock markets are looking better (losing less) than almost all others. Regardless of what we may think of our country’s image abroad, foreigners like the US more than other countries and are voting for us with their dollars.
While we focus on all the problems being pointed out by politicians in heat, foreigners are paying us a great compliment by driving up the value of the dollar for the first time in many years.
The stock market rally that began in mid July may have run out of steam. Although share prices are higher than they were 45-50 days ago, the volume of stocks being traded has dropped off significantly. About 1/3 of the trading volume has gone away and stock prices have been moving more sideways that up as volume dropped off.
What does this mean for investors? Light trading volume does not provide strong validation for the move underway. The rise in prices that began in mid-July has been created by a very small number of buyers outnumbering an even smaller number of sellers. If volume was very strong, that would be a good sign. Weak volume is not a good sign because just a few more sellers could turn the market down in a big way.
Weak volume may just be a result of the summer doldrums. Lots of people are on vacation and not paying attention to the markets. If volume gets back to normal in the next few weeks we may get a better idea about the true direction of the market.
On the other hand, bull markets normally begin after periods of very low volume. All the folks that are going to sell have already sold, causing trading volumes to drop off. Could we be getting ready for a strong fall rally? Could be. The Fed has put enormous amounts of money into the economy and that money needs to go somewhere. Election years have a history of being positive years in the markets, too. We would need a good rally to put a positive ending on a lousy year, but stranger things have happened.
Which scenario is it going to be? I wish I knew. I’m not a fortune teller, I just react to what I actually see happening in the market. Right now there is no clear direction. Unless volume picks up dramatically I think the outcome will be a continuation of the bear market. Perhaps after the Labor Day weekend we will be able to tell more.
For now, capital preservation should be high on your list of investment objectives.
A few weeks ago, with the summer rally running out of steam, I began reducing the risk in our managed portfolios. Right now, our growth portfolios* are hedged to act like they hold 70% cash. To get there, we own the Nasdaq 100** and two small company stock indexes. Our hedges are short holdings (investments that go up as the market goes down) of the S&P 500** (lots of banks in there) and Emerging Markets which have been hit hard lately.
Until the market shows me more direction, I intend to keep the risk in the growth portfolios low.
Our Flexible Income portfolios* are invested in US Government bonds and a fund that goes up as the dollar rises in value.
Both our growth and income models* are showing very small gains for the year. Nothing to get excited about unless you compare these returns to the 11.79% loss year to date that the S&P 500** Index has produced through the end of August. Since the S&P 500** represents the average investor and we are 12% above that, we are doing ooooookay.
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.