First Quarter 2018

Growth continued to outperform value as higher interest rates, inflation worries and tough tariff talk from Washington marked the return of market volatility. Simultaneous to the S&P 500 Index entering its first 10% correction since 2016, estimated earnings growth continued to climb higher. FactSet Research commented, “The first quarter of 2018 marked the largest increase in the bottom-up earnings per share estimates for the S&P 500 Index since they began tracking the data the second quarter of 2002.” The bottom-up estimates rose 5.4% beating the previous record increase of 4.8% in the second quarter of 2004. If the estimated growth rate of 17.3% is achieved, it will compare with earnings rates not seen since the first quarter of 2011 of 19.5%. A decrease in corporate tax rates due to the new tax law is a factor in the improving estimates although the full effect won’t be realized until second quarter accounting as employers continue to adjust payroll deductions. Other factors contributing to rising estimates are climbing interest rates which are positively correlated to Financials while higher oil prices boosted Energy estimates.

Bond yields increased with the ten-year Treasury peaking at 2.95%, its highest level since January 2014. Historically, the top quartile of dividend yielders is negatively correlated to rising rates. The yielders or “bond proxy” stocks are overweight in sectors such as Utilities, Telecom and Staples. Some investors associate outperformance with investing in the highest yielding stocks which historically is not the case. The S&P 500 Index illustration demonstrates the flaws in that assumption by plotting 46 years of total returns based on dividend yields. From March 31, 1972 to March 31, 2018, the highest yielding stocks represented in quartile four rose 13.39% annually, underperforming quartile three which increased 14.40%. Quartile three stocks are also considered to have above average dividend payouts but are not ranked in the top quartile of yielders. Why is this significant? A large portion of dividend “growers,” possessing the strongest fundamentals and dividend payout, are represented in quartile three. As a result, dividend growers have historically provided a superior total return versus the highest yielders.

The High Dividend Equity portfolio focuses on companies e believe possess the ability to increase their dividend faster than the rate of inflation versus a fixed income coupon which can be impacted by duration risk. In a rising rate scenario, we feel that owning “growers” is the best way to drive income growth if bond prices enter a bear market. In 2017, dividend increases grew over 7.0%, a pace well below the 2012 rate of 18.2% seen as many companies sought to either reinstate or raise their dividend after the Great Recession of 2008-2010. If the economy continues to improve, we expect higher dividend payouts due to the tax law changes, increased business spending, accelerated earnings and buybacks.


For the quarter, the High Dividend Equity portfolio weightings in Information Technology, Utility, and Energy added relative performance while the Real Estate Investment Trusts, Telecom, and Staples sectors detracted from performance. We are currently underweight REITs and Telecom and Utilities. Our top performing companies were Raytheon Corp, Oneok, Inc. and Lukoil PJSC ADR while the weakest included Invesco Ltd, Principal Financial Group and Comcast Corp.

Sources: Factset, Ned Davis Research

The opinions expressed are those of the 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.
All investments involve risk, including loss of principal and there is no guarantee that investment objectives will be met.
This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.
Gross performance shown is presented gross of investment advisory fees and includes 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. Net performance includes the deduction of a 3.0% annual wrap fee, which is the highest anticipated wrap fee charged by any sponsor. Management and performance of individual accounts will vary due to differences such as the availability of securities, trading implementation or client objectives, and market conditions. For a fee schedule, please contact your advisor or refer to AssetMark’s Form ADV Part 2A. If you enter into an agreement directly with Clark Capital, refer to Clark Capital’s Form ADV Part 2A. 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 freefloat-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.
Bloomberg Barclays Capital U.S. Government/Credit Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
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.
Morningstar is the largest independent research organization serving more than 5.2 million individual investors, 210,000 Financial Advisors, and 1,700 institutional clients around the world.
For each separate account with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a separate account’s monthly performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of separate accounts in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating for a separate account is derived from a weighted average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics.
©2018 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. Not every client’s account will have these exact characteristics. The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment.
Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. There is no assurance that any securities, sectors or industries discussed herein will be included in an account’s portfolio. Asset allocation will vary and the samples shown may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices and shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk. 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 Bloomberg Barclays Capital U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury inflation-protected securities are excluded, due to tax treatment issues. The index includes Treasury securities, government agency bonds, mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in the U.S. The Bloomberg Barclays Capital Aggregate Bond Index is an intermediate term index.
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.
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.