RMR Investment Committee
Every quarter, RMR’s Investment Committee looks at the current market trends and predictions to adjust or affirm our outlook. We look at a variety of factors affecting both fixed income and equity markets to evaluate our portfolios. We review current and prospective investments through a series of criteria to ensure we are making informed decisions throughout the quarter. Here is our review of the Q1 performance and Q2 outlook for our Pillar Portfolio Investment Program.
2019 Market Update & Outlook
Fixed Income: The environment in the fixed income space has continued to improve in the month of March, the US Aggregate Bond index finishing the month up 2.12%. The March 2019 Fed meeting was considered dovish in nature, leaving policy rates unchanged. The Fed cited slower growth in consumer spending and slowing fixed business investment has primary concerns. Many see the Fed backing out of any adjustment to rates for 2019, with Fed Funds futures are indicating a greater likelihood of a rate cut then a rate hike over the next twelve months. US GDP growth is projected to slow in 2019 with the FOMC now forecasting 2.1% annual growth, down from 3% growth in 2018. This is still higher than the sub 2% average growth rate sustained for the past ten years. The 3.8% unemployment rate represents a 49-year low, while unemployment claims are at a 50 year low. The US job markets now see more people actively searching for jobs than there are jobs available. Core inflation remains below the Feds 2% target, with gasoline and electricity accounting for the only significant non-core increases. Moderate inflation mixed with the Fed’s current position should support fixed income positively for the year.
Equities: As US markets just completed their best quarter in almost ten years, our outlook on Equities remains positive this year; we base this on two primary factors. The first being a change in the Federal Reserve policy of raising interest rates in 2019, as Fed members are now talking about the possibility of no increases to interest rates this year. The second being the Feds re-thinking of removing $50 billion out of the economy each month through their quantitative tightening program which began last year. This should help maintain a more liquid money supply, which would help support equity investments while keeping the USD and interest rates lower.
US markets were strong across the board in Q1, with all sectors posting positive performance. Large cap technology companies based in the US are viewed as relatively “safe” from the next possible recession; names like Google & Amazon are seen as being more capable of adapting and taking on more defensive characteristics as we head into the late bull market cycle. Global markets have performed well year to date, but the IMF has recently cut its forecast for global growth. European markets fared well, but still underperformed US equities by over 2% while dealing with continued BREXIT concerns and a continued reliance upon quantitative easing. The Chinese economy and markets have been hurt considerably more than the US due to the trade war that escalated in 2018. There is still a large gap between the two sides which we expect to linger for some time.
Q2 Investment Meeting
RMR has recently completed a full review of the RMR Pillar Portfolios for Q2 of 2019. Below you will find a summary of our changes for Q2.
Introducing RMR’s Pillar Portfolio ESG Models
ESG, or Environmental, Social, Governance, has taken off in recent years in the business world. With more companies acting in sustainable and transparent ways, ESG investing has naturally followed. Investors are also seeking to invest in Socially Responsible companies that look to have positive impacts on issues such as climate change, resource scarcity, diversity and more. As more investment products have come available in this space, we believe an ESG series of models were warranted and we plan to add ESG screening in the future to our core model portfolios as well.
RMR has officially launched 3 ESG models for the Moderate, Moderate Growth, and Growth risk tolerances. The models track the allocations of our current Passive Models, but instead use positions with an ESG Focus instead of the market indices. Like any other position, these were reviewed under our screening criteria to make sure they are performing up to our standards. These models are not intended to be the main investment portfolio for a client, but can be used for any client interested in them with account sizes above $25,000. If you are interested, speak to your RMR advisor about how these new models may fit your investment strategy.
Model Changes
Our Q2 PIllar Portfolio rebalancing was completed in early April. This quarter we did not materially change our allocations nor investment selection. Your RMR Advisor reviewed your account for rebalancing and trades were placed if needed to bring your portfolio in line with our model.
Takeaway
In the 2019 Q2 Pillar Portfolio review, we found:
- The Fixed Income environment has continued to improve and will likely stay that way, with unemployment and core inflation low.
- Equities outlook remains positive
- U.S. markets were strong in Q1, with all sectors posting positive performance.
- We have added 3 ESG models to our program in the Moderate, Moderate Growth, and Growth risk tolerances. This will fill the growing demand for a more socially conscious investment strategy.
We’re always here to help. Contact RMR Wealth Builders with any questions about your finances in the upcoming year.