Oil – and the Russian Economy – Tumble: Brent crude oil is now just $47/barrel – down 50% from its 2009 high. The Russian economy, already expected to decline 4% this year, faces further instability if energy prices continue to decline.
A “Lost Decade” of Economic Growth for Europe?: Continued deflation in the eurozone poses a major threat to lender and borrower desire to take risk. The European Central Bank (ECB) and eurozone governments must act quickly to reverse sentiment.
U.S. Equities Face Headwinds: Investor expectations for economic growth and profitability may be overly optimistic as the factors recently used to stimulate the economy are unlikely to be repeated.
Strong performance from small and mid-sized companies helped the Navigator All Cap Equity strategy gain approximately +5.41% (gross)/+4.64% (net) for the fourth quarter ending December 31, 2014, modestly outperforming the S&P 500 (+4.93%) and broader Russell 3000 (+5.14%). Prior to the fourth quarter, large cap U.S. equity performance dominated small caps. For the year, our All Cap strategy slightly underperformed by +12.12% (gross)/+8.83% (net) both of our benchmarks (Russell 3000 +12.56% and S&P 500 +13.69%) as roughly 50% of the companies in the strategy have market capitalizations below $10 billion. On a two-year basis, our focus on high quality, undervalued companies with improving business prospects continues to yield strong performance as the strategy has gained +24.44% (gross)/+20.82% (net) compared to 22.68% and 22.61% for the S&P 500 and Russell 3000 respectively. Detractors from performance continued in the energy and materials sector as Westlake Chemical declined 29.4% and Texas lender BOK Financial declined 9.7%. Drug holding Gilead Sciences lost 11.5% as a minor hepatitis C drug price war ensued. Portfolio gainers were mostly heavy beneficiaries of oil’s price decline and included Alaska Air up 37.3%, Gentex up 35.0% and Wisconsin Energy up 22.7%. The quality characteristics of the All Cap strategy remain superior to the S&P 500 as it possess a lower debt-to-equity ratio (0.61 vs 0.68), higher return on equity (30.0% vs 23.2%) and higher net profit margins (13.2% vs 9.1%) with similar value and business growth characteristics.
The opinions expressed are those of Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
Returns are presented gross of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. For example, a 0.50% annual fee deducted quarterly (.125%) from an account with a ten year annualized growth rate of 5% will produce a net result of 4.4%. Actual performance results will vary from this example. The Firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.
Net returns are shown net of 3%, the highest fee that could potentially be charged including investment advisory fees, trading, custody, investment advisory fees and any other expenses that may be incurred in the management of the account. Actual performance results will vary from this example. The Firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.
The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities.
The Dow Jones Industrial Average is a stock market index that shows how 30 large publicly owned companies based in the U.S. have traded during a standard trading session in the stock market.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performers of developed markets outside the U.S. and Canada.
The MSCI Emerging Markets Index is a free float adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
The CBOE Volatility Index (VIX) is a forward looking index of market risk which shows expectation of volatility over the coming 30 days.
The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.
Barclays U.S. Government/Credit Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government-related & investment grade U.S. corporate securities that have a remaining maturity of greater than one year.
The Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities and commercial mortgage-based securities. To qualify for inclusion, a bond or security must have at least one year to final maturity and be rated investment grade Baa3 or better, dollar denominated, non-convertible, fixed rate and publicly issued.
The B of A Merrill Lynch U.S. High Yield Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
The Barclays 7-10 Year Treasury Index tracks the investment results of an index comprised of the U.S. Treasury bonds with remaining maturities between seven and ten years.
The Barclays 20+ Year Treasury Index tracks the investment results of an index comprised of the U.S. Treasury bonds with remaining maturities greater than twenty years.
The Barclays Long-Term Year Treasury Index tracks the performance of the long-term U.S. government bond market.
The Barclays U.S. Corporate High-Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
The Barclays U.S. Treasury Bond Index is an issuances-weighted index measuring the performance of the U.S. Treasury bond market, one of the largest and most liquid government bond markets in the world.
Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request.