The content contained herein is purely for informational purposes and is neither an offer to sell nor a solicitation of an offer to purchase any securities. Such an offer will only be made to pre-qualified investors by means of a confidential private placement memorandum and related subscription documents.

Fourth Quarter 2013: Chart of the Quarter

Financial markets have rallied dramatically from the lows of the Global Financial Crisis in 2008. Risk assets have realized double-digit five-year compound annualized returns despite a succession of challenges. An economic crisis in Europe, lackluster employment growth, political gridlock, elevated energy prices, and geopolitical turmoil have created constant uncertainty for investors. At each impasse, global markets have yielded some ground initially but then swiftly recovered losses.  The markets’ collective ability to withstand external shocks has been due in large part to the role of the U.S. Federal Reserve.  The Fed and other central banks have provided a progressive stimulus to economies and eased financial markets’ anxiety.

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Tax and Estate Planning

The Patient Protection and Affordable Care Act (“ObamaCare”) and the American Taxpayer Relief Act of 2012 (“ATRA”) will cause many taxpayers to experience a higher tax bill for 2013 and for the foreseeable future.Most of us begin each year with a list of New Year’s resolutions that we would like to accomplish during the upcoming year. If your list includes minimizing your tax bill or improving your family wealth planning, there are a number of planning opportunities that you may want to consider in early 2014.  Please click here to see some of Alan Weissberger’s thoughts. 

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Third Quarter 2013: Chart of the Quarter

The reward for assuming volatility risk has varied dramatically in the past several years. At the last equity market peak in August of 2007 (orange line), there was little reward for moving out on the risk curve. After the great financial crisis of 2008, the compensation for incremental risk (blue line) widened to historic levels. Today’s capital markets (green line) offer a much narrower opportunity set, reminiscent of the August 2007 peak with the exception of Commodities, International Developed, and Emerging Markets stocks. These asset classes remain attractively priced, and we continue to overweight them across client portfolios.

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Second Quarter 2013: Chart of The Quarter

Emerging Market equities are the most attractive asset class in our valuation work. This chart illustrates that the normalized earnings for Emerging Market stocks (blue line, right hand scale) has continued to increase despite the flat price return since early 2010. As a result, the normalized earnings yield now exceeds 9% in real terms compared with 4% at the peak of the last cycle in 2007. Back then, investors were enthralled by the long-term secular growth outlook for emerging economies. Today, the same investors are full of apprehension and doubt. They point to inflation, political turmoil, and weak Developed Markets demand for exports. We, too, are cognizant of the near-term headwinds. However, we believe the valuation provides a significant margin of safety.

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First Quarter 2013 Investment Perspective: Chart of the Quarter

Investors have traditionally relied on three asset classes to protect against the real loss of purchasing power over time: Treasury Inflation Protected bonds, Real Estate (either direct or Real Estate Investment Trusts), and Commodities (both futures on physical assets and the equities of commodities producers). In the chart above, we highlight the changes in forward-looking expected real returns on each. As nominal yields on Treasurys have declined below the break-even expected inflation rate, TIPS now offer a negative real rate. Likewise, as investors have sought yield instruments across the equity spectrum, REIT yields have been pressured to historic lows. By contrast, commodities and stocks of commodities producers have become increasingly attractive. Concerns over global growth (particularly from resource-intensive China) have dampened investors’ outlooks for producers and physical commodities. We never subscribed to the commodities super-cycle. However, we now view commodity-related stocks as attractively valued among global equities. Further, the fundamentals of many commodities—whether marginal costs of production, inventories, or the discounts of forward prices to spot markets—look dramatically improved. We have increased our strategic weights to the commodities complex in client accounts.

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