Capital Markets Review - Retirement & Investment Group, LLC

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APRIL 2014
REVIEW ING THE QUARTER ENDED MARCH 31, 2014
1
Table of Contents
Economic Review … 3-8
Capital Markets … 9-20
Q2 Themes … 21-24
Gross Domestic Product
Index Returns
Municipal Bonds
Employment
Asset Class Returns
Emerging Markets
Inflation
S&P 500 Sector Returns
Healthcare
Key Interest Rates
Equity Styles
Housing Market
U.S. Treasuries
Fixed Income Yields
S&P 500 Yields vs.
Treasury Yield
Price-Earnings Ratio
Foreign Exchange Rates
Commodity Prices
Mutual Fund Flows
2
Economic Review
GROSS DOMESTIC PRODUCT
GDP rose at a 2.6% annualized rate in the fourth quarter of 2013.
Source: Bloomberg, as of 12/31/13
15%
10%
5%
2.60%
0%
-5%
-10%
83
86
89
92
95
98
01
Quarterly Change in Real GDP (%, Annualized)
3
04
07
Recession
10
13
Economic Review
CONTRIBUTIONS TO % CHANGE IN REAL GDP
Economic growth was driven by consumer spending, private investment and net exports
while government spending was a drag on growth in the fourth quarter.
Source: Bloomberg, as of 12/31/13
8%
6%
4%
0.99%
2.22%
2%
0.41%
-0.99%
0%
-2%
-4%
-6%
-8%
-10%
03
04
05
07
08
09
10
Private Investment
Consumer Spending
Government Spending (Federal, State, Local)
Net Exports
Recession
4
06
11
12
13
Economic Review
EMPLOYMENT
The unemployment rate hovered at its five-year low as job growth slowed slightly
in the first quarter because of weather related issues.
12%
Civilian Unemployment Rate
600 Monthly Payroll Changes
Source: Bloomberg, as of 3/31/14
Source: Bloomberg, as of 3/31/14
400
10%
200
192
8%
0
6.7%
6%
-200
4%
-400
2%
-600
0%
-800
94
96
98
00
02
04
06
08
10
12
14
-1,000
Recession
5
Civilian Unemployment Rate
94
175
96
98
00
02
04
06
08
10
Monthly Change in Nonfarm Payrolls (000s)
12
14
Recession
Economic Review
INFLATION
Inflation remains well below the Federal Reserve’s target of 2.0%.
Source: Bloomberg, as of 2/28/14
6%
5%
4%
3%
2%
1.60%
1%
1.10%
0%
-1%
-2%
-3%
94
96
98
Recession
6
00
02
04
Change in CPI - U,
All Items (Annual)
06
08
10
12
Change in CPI - U,
Less Food & Energy (Annual)
14
Economic Review
KEY INTEREST RATES
Most interest rates are down slightly from the fourth quarter.
Source: Bloomberg, as of 3/31/14
10%
9%
8%
7%
6%
5%
4.32%
4%
3.25%
3%
2%
1%
0.75%
0.07%
0%
94
96
Recession
7
98
00
Discount Rate
02
04
06
Fed Funds Rate
08
10
Prime Rate
12
14
30-Year Mortgage
Economic Review
HOUSING MARKET
Housing prices stand at post-recession highs but poor weather seems
to have stalled the upward trend in sales during the quarter.
250 Home Prices
Source: Bloomberg, as of 1/31/14
180.08
200
8 Home Sales
Source: Bloomberg, as of 2/28/214
7
6
5
150
4.60
4
100
3
2
50
1
0
0
93
95
97
Recession
8
99
01
03
05
07
09
11
S&P/Case-Shiller Home Price
13
04
06
Recession
08
10
12
14
Seasonally Adjusted Existing Home Sales
(Annual Rate, Millions)
Capital Markets
INDEX RETURNS GROWTH OF A DOLLAR
$4.50
$4.47
$4.00
$3.50
$3.00
$2.28
$2.20
$2.15
$2.01
$2.50
$2.00
$1.50
$1.37
$1.00
$0.50
$0.00
99
02
Recessions
Non-U.S. Equity
Cash & Cash Alternatives
U.S. Equity
Non-U.S. Equity
Real Estate
Cash & Cash Alternatives
Fixed Income
Commodities
9
05
08
11
U.S Equity
Real Estate
Commodities
Fixed Income
YTD
1-Year
3-Year
5-Year
10-Year
1.97
0.75
4.01
0.01
1.84
6.99
22.61
16.46
2.22
0.04
-0.10
-2.10
14.61
6.27
8.50
0.06
3.75
-7.37
21.93
15.88
22.97
0.09
4.80
4.24
7.86
6.71
7.84
1.56
4.46
0.43
14
Source: Morningstar, as of 3/31/14
Investors cannot invest directly in an
index. Past performance is not
indicative of future results. See asset
class benchmarks on slide 27.
Capital Markets
ASSET CLASS RETURNS
In the first quarter, the world markets were resilient in the face of strong headwinds.
Source: Morningstar, as of 3/31/14
Past performance is not indicative of future results. Annual Returns for Key Asset Classes (2002-1Q2014). See asset class benchmarks listed on slide 26.
10
Capital Markets
ASSET CLASS RETURNS
Equity indices were resilient in the first quarter while investment grade bond performance
was positive after a lackluster fourth quarter.
Source: Morningstar
-2.10%
Dow Jones UBS Commodity
6.99%
3.24%
2.79%
Barclays Global Aggregate ex U.S.
7.54%
Barclays U.S. Corporate High Yield
2.98%
Barclays U.S. Aggregate Bond
-0.10%
MSCI Emerging Markets
-1.43%
-0.43%
1.84%
23.26%
MSCI EAFE Small Cap
3.36%
17.56%
MSCI EAFE U.S.$
0.66%
24.90%
Russell 2000
1.12%
21.86%
S&P 500
-15%
1.81%
-10%
-5%
0%
5%
10%
15%
12 Months Ending 3/31/2014
Past performance is not indicative of future results.
11
20%
Q1 2014
25%
30%
35%
Capital Markets
S&P 500 SECTOR RETURNS
All but one S&P sector posted a positive return in the first quarter.
The Utilities sector was the standout, outpacing the rest by nearly 4.3 percentage points.
Source: Morningstar
Consumer Discretionary
24.00%
-2.80%
27.29%
Industrials
0.14%
2.32%
0.47%
Telecom Services
10.65%
Consumer Staples
0.51%
14.41%
Energy
0.79%
21.86%
S&P 500
1.81%
25.59%
Information Technology
2.28%
24.91%
Financials
2.61%
Materials
29.24%
Healthcare
5.81%
10.28%
10.09%
Utilities
-10%
23.29%
2.86%
-5%
0%
5%
10%
15%
12 Months Ending 3/31/2014
20%
25%
30%
35%
Q1 2014
Returns are based on the GICS Classification model. Returns are cumulative total return for stated period, including reinvestment of dividends. Past performance is not indicative of future results.
12
Capital Markets
EQUITY STYLES
Value stocks outperformed growth for the quarter while mid caps outshined large and small caps.
Q1 2014
12 Months ending 3/31/14
Value
Blend
Growth
Large
21.57%
22.41%
23.22%
2.04%
Mid
22.95%
23.51%
24.22%
0.48%
Small
22.65%
24.90%
27.19%
Value
Blend
Growth
Large
3.02%
2.05%
1.12%
Mid
5.22%
3.53%
Small
1.78%
1.12%
Source: Morningstar
Style box returns based on the GICS Classification model. All values are cumulative total return for stated period including reinvestment of dividends. The Indices used from left to right, top to bottom are: Russell
1000 Value Index, Russell 1000 Index, Russell 1000 Growth Index, Russell Mid-cap Value Index, Russell Mid-cap Blend Index, Russell Mid-cap Growth Index, Russell 2000 Value Index, Russell 2000 Index and
Russell 2000 Growth Index. Past performance is not indicative of future results.
13
Capital Markets
U.S. TREASURIES
The yield curve has steepened sharply over the last 12 months but the spread between
the 10-year and 2-year Treasuries tightened slightly in the first quarter.
4.0% Treasury Yield Curve
Source: U.S. Treasury, as of 3/31/14
300 2YR/10YR Treasury Spread
3.5%
250
3.0%
200
2.5%
150
2.0%
100
1.5%
50
1.0%
0
0.5%
-50
0.0%
1mo 3mo 6mo 1yr
2yr
1 Year Ago (3/31/13)
3yr
5yr
7yr 10yr 20yr 30yr
229.97
-100
94
96
98
00
02
04
06
08
10
12
14
Current (3/31/14)
Recession
14
Source: Bloomberg, as of 3/31/14
2YR/10YR Treasury Spread (BPS)
Capital Markets
FIXED INCOME YIELDS
Fixed income yields fell after rising sharply at the end of 2013.
Source: Bloomberg and U.S. Treasury, as of 3/31/14
25%
20%
15%
10%
5.23%
5%
3.03%
2.72%
2.55%
0%
04
06
08
Recession
Barclays 10-Year Municipals YTW
Barclays U.S. Aggregate Credit YTW
Past performance is not indicative of future results.
15
10
12
10-Year U.S. Treasuries YTW
Barclays High Yield 2% YTW
14
Capital Markets
S&P 500 YIELD VS. TREASURY YIELD
The 10-Year Treasury yield remained above the S&P dividend yield in the first quarter.
Source: Bloomberg and U.S. Treasury, as of 3/31/14
16%
14%
12%
10%
8%
6%
5.79%
4%
2.72%
2%
1.94%
0%
84
87
90
93
Recession
S&P 500 Dividend Yield
Past performance is not indicative of future results.
16
96
99
02
05
08
S&P 500 Earnings Yield
10-Year U.S. Treasuries YTW
11
2014
Capital Markets
PRICE-EARNINGS AND PRICE-BOOK RATIOS
Valuations of the S&P 500 have continued to move higher as investors gain further confidence.
35 Price-Earnings
Source: Bloomberg, as of 3/31/14
30
6 Price-Book
Source: Bloomberg, as of 3/31/14
5
25
4
20
17.28
3
2.62
15
2
10
1
5
0
0
99
02
Recession
17
05
08
11
14
Trailing 12-Month P/E (S&P 500)
99
02
Recession
05
08
11
Price-Book (S&P 500)
14
Capital Markets
FOREIGN EXCHANGE RATES
The U.S. dollar strengthened against a broad basket of currencies in the first quarter.
Source: Bloomberg, as of 3/31/14
140
130
120
110
102.99
100
90
80
70
60
94
96
98
00
Recession
02
06
08
10
12
Trade Weighted Exchange Index (Top 26 U.S. Trade Partners)
3/31/2014
3/31/2013
103.23
94.22
Euro (€) / U.S. Dollar ($)
1.38
1.28
British Pound (£) / U.S. Dollar ($)
1.67
1.52
Source: FactSet
Japanese Yen (¥) / U.S. Dollar ($)
18
04
14
Capital Markets
COMMODITY PRICES
The price of gold surged over 7% in the first quarter, but it is still down almost 20% on a year-over-year basis.
Oil prices rose 3.0% in the first quarter and are up nearly 4.5% on an annual basis.
Source: Bloomberg, as of 3/31/14
$2,000
$1,800
$160
$140
$1,600
$1,400
$1,291.75
$100
$1,200
$101.58
$1,000
$80
$800
$60
$600
$40
$400
$20
$200
$0
$0
94
96
98
00
02
Recession
19
04
Gold
06
08
Oil
10
12
14
Oil Price Per Barrel
Gold Price Per Ounce
$120
Capital Markets
MUTUAL FUND FLOWS
Assets flowed out of money market funds in the first quarter while stock and bond funds attracted new capital.
$150
Money Market Funds
Source: Morningstar, as of 2/1/14
$60
$100
$40
$50
$20
$0
$0
Stock and Bond Funds
Source: Morningstar, as of 2/1/14
$13.63
$9.68
-$20
-$50
$(46.17)
-$100
-$40
-$150
-$60
-$200
-$80
99
02
05
08
Money Market Fund Flows ($B)
20
11
Recession
14
99
02
05
Bond Fund Flows ($B)
08
11
14
U.S. Stock Fund Flows ($B)
Q2 Themes
MUNICIPAL BONDS
Historic AAA Municipal Treasury Yield Ratio
Source: Bloomberg and MMD
21
Q2 Themes
EMERGING MARKETS
The emerging markets typically have higher growth rates than the developed world.
10.0%
Annual GDP Growth (2013)
Developed
Emerging
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
China
Philippines
Indonesia
Singapore
Malaysia
India
Korea
Sweden
Hong Kong
Taiwan
Australia
Japan
United Kingdom
United States
Canada
South Africa
Brazil
Switzerland
Ireland
Germany
Russia
France
Netherlands
Mexico
Thailand
Spain
Italy
Greece
-8.0%
Source: Bloomberg, and IMF
22
Q2 Themes
EMERGING MARKETS
The emerging markets generally have the ability to respond to economic and financial events much faster
than the developed world due to their flexible monetary and fiscal policies.
250%
Government Debt, % of GDP (2012)
Source: IMF, World Economic Outlook Database, 10/13
200%
150%
100%
50%
0%
Developed
23
Emerging
Q2 Themes
HEALTHCARE
Shifts in Consumer Spending Through the Years
Percentage of Personal Consumption Expenditures
22.0%
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1960
1964
1968
1972
1976
Food and Beverages
Source: Bureau of Economic Analysis
24
1980
1984
Housing
1988
1992
1996
Gasoline
2000
2004
2008
2012
Health
Care
Healthcare
DISCLOSURE
Data provided by Raymond James Asset Management Services.
This material is for informational purposes only and should not be used or construed as a recommendation regarding any security outside of a managed account.
There is no assurance that any investment strategy will be successful or that any securities transaction, holdings, sectors or allocations discussed will be
profitable. It should not be assumed that any investment recommendation or decisions made in the future will be profitable or will equal any investment
performance discussed herein.
Please note that all indices are unmanaged and investors cannot invest directly in an index. An investor who purchases an investment product that attempts to
mimic the performance of an index will incur expenses that would reduce returns. Past performance is not indicative of future results. The performance noted in
this presentation does not include fees and costs, which would reduce an investor's returns.
Fixed income securities are subject to interest rate risk. Generally, when interest rates rise, bond prices fall, and vice versa. Specific-sector investing can be
subject to different and greater risks than more diversified investments.
The Consumer Price Index (CPI) is a measure of inflation.
Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the United States.
Investing in small-cap and mid-cap stocks generally involves greater risks, and, therefore, may not be appropriate for every investor. International investing also
involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility.
High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer’s credit quality. Price changes may occur due to
changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of your portfolio.
Commodities trading is generally considered speculative because of the significant potential for investment loss.
U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal
value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are
certificates reflecting short-term (less than one year) obligations of the U.S. government.
Fixed Income Sectors: Returns based on the four sectors of Lehman Global Sector Classification Scheme: Securitized (consisting of U.S. MBS Index, the ERISAEligible CMBS Index and the fixed-rate ABS Index), Government Related (consisting of U.S. Agencies and non-corporate debts with four sub sectors: Agencies,
Local Authorities, Sovereign and Supranational), Corporate (dollar-denominated debt from U.S. and non-U.S. industrial, utility, and financial institutions issuers),
and Treasuries (includes public obligations of the U.S. Treasury that have remaining maturities of one year or more).
Diversification does not guarantee a profit nor protect against loss. Dividends are not guaranteed and will fluctuate.
25
INDEX DESCRIPTIONS
Asset class and reference benchmarks:
ASSET CLASS
BENCHMARK USED
U.S. Equity
Russell 3000
Non-U.S. Equity
MSCI World, Ex-U.S.
Fixed Income
BC Aggregate
Real Estate
FTSE EPRA NAREIT Global Real Estate
Commodities
DJ UBS Commodity Index
Cash & Cash Alternatives
Citi 3-Month T-Bill
The Dow Jones AIG Commodity Index: Composed of futures contracts on 19 physical commodities traded on U.S. exchanges, with the exception of aluminum, nickel
and zinc, which trade on the London Metal Exchange. The index serves as a diversified and highly liquid benchmark for the commodity futures market.
The Dow Jones-UBS Commodity IndexesSM: Composed of exchange-traded commodity futures contracts rather than physical commodities.
Barclays Capital Aggregate Index: Measures changes in the fixed-rate debt issues rated investment grade or higher by Moody’s Investors Service, Standard &
Poor’s, or Fitch Investor’s Service, in that order. The Aggregate Index is comprised of the Government/Corporate, the Mortgage-Backed Securities and the AssetBacked Securities indices.
Barclays Capital U.S. Aggregate Index: Represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade
fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
BC Global Aggregate ex-U.S. Dollar Bond Index: Tracks an international basket of bonds that currently contains 65% government, 14% corporate, 13% agency and
8% mortgage-related bonds.
BC High Yield: Covers the universe of fixed-rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as
emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC-registered) of issuers in non-EMG countries are
included. Original issue zeroes, step-up coupon structures and 144-As are also included.
Citigroup 3-Month T-Bill Index: This is an unmanaged index of three-month Treasury bills.
FTSE EPRA/NAREIT Global Real Estate Index Series: Designed to represent general trends in eligible listed real estate stocks worldwide. Relevant real estate
activities are defined as the ownership, trading and development of income producing real estate.
MSCI All Country World Index Ex-U.S.: A market-capitalization-weighted index maintained by Morgan Stanley Capital International (MSCI) and designed to provide a
broad measure of stock performance throughout the world, with the exception of U.S.-based companies. It includes both developed and emerging markets.
26
INDEX DESCRIPTIONS (continued)
MSCI EAFE (Europe, Australasia, Far East): A free-float adjusted market capitalization index that is designed to measure developed market equity performance, excluding
the United States and Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI EAFE Growth: Represents approximately 50% of the free-float adjusted market capitalization of the MSCI EAFE index, and consists of those securities classified by
MSCI as most representing the growth style.
MSCI EAFE Small-Cap Index: An unmanaged, market-weighted index of small companies in developed markets, excluding the U.S. and Canada.
MSCI EAFE U.S. Dollar: An unmanaged capitalization-weighted index of companies representing the stock markets of Europe, Australasia and the Far East.
MSCI EAFE Value: Represents approximately 50% of the free-float adjusted market capitalization of the MSCI EAFE index, and consists of those securities classified by
MSCI as most representing the value style.
MSCI Emerging Markets: Designed to measure equity market performance in 25 emerging market indexes. The three largest industries are materials, energy and banks.
MSCI Local Currency: A special currency perspective that approximates the return of an index as if there were no currency valuation changes from one day to the next.
Russell 1000: Measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 90% of the investible U.S. equity market.
Russell 1000 Value Index: Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 1000 Growth Index: Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell Mid-cap: Measures the performance of the 800 smallest companies of the Russell 1000 Index, which represent approximately 30% of the total market capitalization
of the Russell 1000 Index.
Russell Mid-cap Value Index: Measures the performance of those Russell Mid-cap companies with lower price-to-book ratios and lower forecasted growth values.
Russell Mid-cap Growth Index: Measures the performance of those Russell Mid-cap companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000: Measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of
the Russell 3000 Index.
Russell 2000 Value Index: Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2000 Growth Index: Measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.
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.
Standard & Poor’s 500 (S&P 500): Measures changes in stock market conditions based on the average performance of 500 widely held common stocks. Represents
approximately 68% of the investable U.S. equity market.
27
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