2017-Q3 Quarterly Update
October 1, 2017
Dear Mr. and Mrs. Smith,
The third quarter of 2017 will be remembered for its “big wind.” Two Category 4 hurricanes hit the continental United States and a third devastated Puerto Rico. Truly historic weather. Geoplolitical wind howled out of Washington D.C. and North Korea in ever escalating tweats and threats. All this turmoil was of little consequence to the stock market as the S&P 500 Index blew past 2500 for the first time in history.
While all-time S&P Index highs are a good thing, we are experiencing a divergence of returns. Growth stocks are outperforming value stocks so far this year. According to Standard & Poor’s 500 Index (S&P) the total return on the S&P is 14.24%, while growth stocks are up 19.3%. Many growth stocks do not meet our investment guidelines of consistent earnings and reasonable price-to-earnings ratios. So, as the market “winds” of momentum and exuberance blow their prices ever higher, we will refrain from invesing in those overpriced stocks, as we are afraid their market valuation is based on a lot of hot air. While our Growth Portfolio may be trailing the headline returns by a bit, we believe prudence trumps performance in this case.
The majority of our investors are “value oriented.” According to S&P, value stocks are up approximately 8.5% year-to-date. Our Income and Value portfolio returns are comparable and competitive with this performance. Additionally, our Income Portfolio has a dividend yield of 4%; almost twice that of the S&P.
As we head into the fourth quarter we remain optimistic. We believe this is an earnings-driven market and earnings continue to grow. While interest rates rose slightly at the end of the quarter, we are still below the rates we had at the beginning of the year. TIA believes stocks will go higher and interest rates will remain lower longer than in previous credit cycles. Low inflation, reasonable energy prices, world-wide economic activity, and low unemployment all support our investment thesis. Any type of corporate tax reform will further increase our earnings outlook. TIA will continue to refine our portfolios in an effort to keep your investments safe and prosperous no matter which way the “wind” is blowing.
Thank you for your investment confidence and we welcome your calls about your account.
G. Michael Prugh, CPA
Senior Vice President & CFO