TrueWealth’s 2nd Quarter 2017 Commentary

TrueWealth’s 2nd Quarter 2017 Commentary


Q2 saw positive returns in all major asset classes. International returns were outstanding for the quarter, just as they were in the previous quarter. For the year, International Developed and Emerging Markets were up double digits through six months, outpacing U.S. returns by as much as 2X. These returns also continued to be magnified by the decline of the dollar against most foreign currencies.

In fact, Q2 market performance was largely a repeat of Q1, and so was the performance lag of small cap and value style investing. We could do some “rear view mirror” analysis of why, but it’s largely the result of the natural ebb and flow of different market elements. And by the way, they were up as well, just not as much as general market indexes.

For a full review of these and other markets, click here. We also include a quick commentary called “When Rates Go Up, Do Stocks Go Down?” at the end of the market review.


It’s often said that markets climb a wall of worry. I suspect we’ve said that a time or two in this newsletter. It’s largely true, and it’s just another element of risk and return being related. “What!?,” you say.

Consider all the potentially bad outcomes that could affect markets. Forget the domestic political quarrels for a moment, which are significant. International concerns are even more substantive and in some cases, existential. They certainly can start with North Korea, but they don’t end there. (There’s a good story here. Just stick with me).

So why amid these uncertainties do markets continue to rise?

There are two reasons. First, these risks by definition are uncertainties, not realities. We don’t know how they will end. The arc of human history shows us that over time, they turn out better more often than not, but we may not know for days or decades.

Second, and more importantly, these possibilities of bad (and good) outcomes are already priced into securities. Because investors are fully aware of these risks, it’s reasonable to assume that prices reflect them all the time. Otherwise, investors would not commit their capital if they weren’t adequately compensated, whether the risk is a bad company earnings report or a global conflict. In other words, it’s just another element of the market risk and return story.

Therefore, we get the “wall of worry” scenario where amid seemingly apparent global turmoil, we have rising markets as these risks either stabilize or decrease and investors are subsequently rewarded for their patience.

So, while heightened risks are reasons to “worry,” they are also reasons to be optimistic for better future returns. That’s our story, and we ARE sticking to it. 

A Market Observation

You know by now that we don’t make market predictions, or at least we don’t manage portfolios around such predictions, or more accurately, “guesses.” It doesn’t serve our clients well, and history is littered with a junkyard of wrong predictions of formerly esteemed market soothsayers.

We are huge believers in the efficiency of markets. Any reasonable assessment of managers who attempt to beat markets by exploiting market inefficiencies (which are most managers) concludes that they can’t do it reliably, and the outperformers are more likely to be a result of luck, not skill. For the curious, click here for more info on that.

But I must confess, that at times, one can have too much of a good thing. As we mentioned last quarter, there is a veritable avalanche of money flooding into index funds as it exists the traditional approaches to investing. By far, the largest beneficiary of that is the Vanguard 500 fund which tracks the S&P 500 index, arguably the best-known index in the world.

Isn’t this good? YES! In the long run. Not necessarily in the short run. Most index funds like the S&P 500 are capitalization weighted, meaning that more money is allocated to larger companies than smaller ones. This means as more money “chases” the index, the larger companies can get larger faster, and you CAN get some distortion. We saw this in the late 1990s with the prototypical growth companies of that era. The result was a painful correction beginning in 2000.

Could we be facing another tech bubble with the FANG stocks (Facebook, Amazon, Netflix, Google) of today? Are we making a prediction? And if so, what we would do about it?

Maybe, sorta-kinda, and nothing are the answers.

Human nature, even for the coldest of hearted professionals, doesn’t work well in investment management. Human nature causes us to remember predictions that come true and forget ones that don’t. Distortions also are much easier to see in the rear-view mirror than they are in real-time. Combine these with the poor report card on active money managers, and it just doesn’t make sense to adjust clients’ portfolios when we have high confidence that our approach will work well over time.

Even so, we’re like you. We wonder what’s going to happen in the short-term. It’s interesting, and sometimes we’re right, but it’s no way to manage clients’ money. In the long-term, we can observe that markets provide attractive positive returns. And some markets have provided better returns than others. We attempt to give our clients exposure to those in cost effective ways, and that’s a better approach.

Until next time –

Jim Heard is CEO at TrueWealth, LLC, a wealth management firm located in Atlanta. He has extensive experience spanning 30+ years in financial planning for Senior Executive Planning and Ultra-High Net Worth Individuals & Families. He provides the vision that enables TrueWealth team members to provide a truly exceptional wealth management experience to the individuals and families that the firm serves. He can be reached at or 404.487.0501.

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