ALTAIR
ADVISERS
Second Quarter • 2015
A LT A I R I N S I G H T
a quarterly market review.
Photo credit: Don Sorota
Waikiki Beach
FOUR KEY TOPICS
 Any shock waves from
the Greece and China
crises should not be
harmful to portfolios.
 A middling economy
is recovering from a
bad quarter but not
enough for the Fed
to tighten monetary
policy yet beyond a
token rate hike or two.
 Bonds should continue
to anchor portfolios
despite this year’s decline.
 The record M&A
wave buoying the
bull market in its later
stages shows no sign
of easing.
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Overblown
Financial crises in Europe and China
escalated simultaneously for a time this
summer, temporarily roiling the markets like rogue waves looming out of
calm waters. To the surprise of many,
they appear to have left behind only
ripples, or at least the dangers have receded for the moment.
None of what happened in Greece,
China or, closer to home, recessionwracked Puerto Rico, which acknowledged it cannot pay its public debt of
$72 billion, has altered our overall view
of the markets. Nevertheless, discerning investors have had some interesting lessons learned or reinforced.
One broad takeaway is that for all the
global economy’s vulnerabilities and
struggles to grow consistently, the
world’s financial structures are far sturdier than they were in 2008 or 2012, the
time of the last Greek debt showdown.
Banks are much better able to withstand collateral damage from events
such as a Greek default and potential
“Grexit” from the eurozone or the Chi-
July 2015
nese stock market crash, both of which
could have caused widespread contagion. Or at least the markets perceive
the risks now to be much lower.
Investors seem to have quickly applied
this knowledge, as evidenced by the absence of panic even during short-lived
selloffs. The VIX, the stock market’s
fear gauge, rose during the crises but
never exceeded 20, roughly its longterm historical average. The St. Louis
Fed Financial Stress Index climbed to
its highest level since 2013 as the second quarter ended, yet remained well
below normal. Likewise at Altair, we
did not view the recent volatility as a
reason to change our portfolio allocations. In fact, many of our recommended managers expressed that they were
able to take advantage of the gyrations.
The markets’ resilience underscored
another truth behind the tumult: Central banks are still the driving force behind the world’s markets and do not
hesitate to intervene in order to achieve
short-term calm (albeit at uncertain
2 Altair Insight • Second Quarter • 2015
Source: Noah Kroese Illustration
long-term cost). The European Central Bank already had
lessened the fiscal pressure from Greece’s plight in March
by launching a quantitative easing program in which the
eurozone’s central bankers are buying 60 billion euros
($67 billion) of debt a month. China’s bailout of its plummeting stock market was far more extensive and riskier
but stanched the massive selling for now.
A welcome consequence of all the international drama
was that it wrenched the investment world’s focus away
from its daily fixation on the Federal Reserve’s eventual
interest rate hike.
As we have written before, we believe the markets attach
entirely too much value to the timing and magnitude of
this coming event. We would even call the liftoff overrated (pardon the pun) – a category that also can now include the initial excessive fears about both the impact of
a Greek exit from the eurozone and China’s stocks meltdown. As Jeremy Grantham, money manager GMO’s
chief investment strategist, put it at last month’s Morningstar Investment Conference: “Why would a single
rate hike have everyone in a fit?”
Our attention instead is devoted more to issues of waning global growth, a domestic economy that progresses
in fits and starts and the staying power of a merger wave
that has helped keep the U.S. stock market near record
levels. To us, the crux is not about when the Fed raises
rates, it is about whether key economic areas and corporate earnings are improving and by how much. Because we see a balance of progress and problems at the
moment, we remain neither bullish nor bearish and are
keeping our neutral positioning in all three investment
risk categories (higher, medium and lower).
As we go to print, Iran and the world powers have
agreed to a historic deal limiting Tehran’s nuclear ability
for more than a decade in return for lifting international oil and financial sanctions. The impact on the world
economy is uncertain; we will closely monitor the impact
on global oil supplies and other areas.
As for those absorbed in rate hike speculation to the exclusion of seemingly all else, we would advise them to
take a cue from a well-known lyric of the Grateful Dead,
who performed their final concerts almost within earshot
of Altair’s offices this month: “Hang it up and see what
tomorrow brings.” Fare thee well.
Altair Insight • Second Quarter • 2015 3
Topics that caught our eye this quarter:
Bond Market Yawns
1. Any shock waves from the Greece and China
crises should not be harmful to portfolios.
Had this crisis exploded three to five years ago, the opposite would have held true. In 2010, before Greece’s
sovereign debt was restructured, most of the approximately $440 billion it owed was held by private, mostly
European banks and a default could have caused a wave
of panic. Today that figure is down to less than 15 percent, or about $46 billion, much of the rest having been
consolidated in the hands of the International Monetary
Fund and the European Central Bank, which can more
easily absorb losses.
350
Converted to USD
300
Greek Sovereign Debt
Held by Foreign Banks
$300
Billion
250
200
150
100
$46
Billion
50
0
2010
18
16
14
Yield (%)
Greece’s future status within the eurozone, and the price
it must pay to stay in, remains uncertain. But, “Grexit”
or no Grexit, it seems clear the latest resolution will not
inflict material damage on Europe or wreck its fledgling
economic recovery.
10-Year Government Bond Yields
12
10
8
6
4
2
0
Greece
Italy
Spain
Yield 12/31/2014
Portugal
United
States
Yield 6/30/2015
Sources: Altair Advisers, Yahoo Finance
More importantly, if Prime Minister Alexis Tsipras had
been able to successfully outmaneuver Germany and use
the threat of an exit from the union as leverage to negotiate better terms in a deal or restructure some of Greece’s
debt, it may have encouraged similar populist leaders
across Europe to push for similar concessions, further
weakening the eurozone. This key risk was averted for
the time being.
As for China, a stock market crash that wiped out $3.5
trillion of investors’ wealth in less than a month is certainly troubling for those involved. But context is important: Even at the bottom of a 34 percent drop, the price
level of the Shanghai composite index, the country’s
largest, remained up 6 percent (not counting dividends)
for the year.
June 2015
Sources: Altair Advisers, Yahoo Finance
Greece’s small size, too, has always meant its default
and exit – while carrying momentous implications for
the Greek economy and its people – would be more important as a symbol and precedent than financially overwhelming for Europe. An analyst put the size in perspective this month, pointing out that the market cap of the
MSCI Greece fund is now the same as that of Bed, Bath
and Beyond.
While China’s economic growth is the weakest since
2009 and company profits are lower than a year ago, this
was about a bubble bursting. When a stock market soars
151 percent in less than a year, as Shanghai did, a selloff
is almost a healthy outcome rather than an indication of
underlying problems with the economy. The makeup of
the market’s participants limited the spillover effect: Foreigners own just 1.5 percent of shares, and the funding
for stock investments, much of them made on margin,
came from Chinese brokers, not banks.
4 Altair Insight • Second Quarter • 2015
Shanghai Composite Index
6,000
January 1, 2014 - July 15, 2015
5,000
Index Levels
4,000
3,000
2,000
1,000
0
Sources: Altair Advisers, Yahoo Finance
As notes Michael Hasenstab, portfolio manager of the
Templeton Global Bond Fund, one of Altair’s recommended fixed-income managers, most of China’s wealth
is held in the real estate sector, not in stocks. “Clearly that
(stock) market is in its embryonic stage of development,
which makes it subject to rapid swings on the up and
down. It would unlikely be the dominant factor in driving the trajectory of China.”
China has received withering criticism for trying to halt
the stock slide with a variety of measures, including a
cap on short selling, a suspension of trading and a cash
injection of 120 billion renminbi ($19.4 billion) from the
central bank for brokerage firms to buy more stocks. Unorthodox moves to be sure, without guarantee of success,
but not unprecedented. U.S. regulators temporarily prohibited the short selling of financial stocks and suspended mark-to-market accounting rules during the financial
crisis of 2008-09 to try to stem declines. For now, we give
the benefit of the doubt to a government that has proven
to be fairly adept at managing the game of “capitalism.”
2. A middling economy is recovering from
a bad quarter but not enough for the Fed to
tighten monetary policy yet beyond a token
rate hike or two.
No one is turning cartwheels over the plodding pace of
the U.S. economy. Based on the latest estimate from the
Atlanta Fed’s GDPNow forecast model, GDP growth for
the second quarter was about 2.4 percent on an annualized basis. That might be cause for celebration in Russia,
Brazil or Argentina but not here, especially after a firstquarter contraction of 0.2 percent.
Yet we see positive signs behind those numbers. The
troublesome areas of the economy that we cited in the
last Altair Insight have yet to flash warning signs, and
some have shown improvement.
Consumer spending, which accounts for about twothirds of the economy, jumped the most in any month
since August 2009 with a 0.9 percent year-over-year increase in May. Wage growth has shown halting signs of
Altair Insight • Second Quarter • 2015 2200
Valuations Rise as Earnings Slow
S&P 500 Price vs. Operating Earnings
5
$34
2000
$29
1800
S&P 500 Level
1400
$19
1200
$14
1000
800
Operating EPS ($)
$24
1600
$9
600
$4
400
200
$(1)
Operating EPS
S&P Price Level
Sources: Altair Advisers, Yahoo Finance
revival, with the 12-month growth rate climbing to a twoyear high in May before retreating to 2 percent in June.
The slowdown in the growth of corporate earnings,
however, has emerged as an area of slight concern with
profits projected to grow just 2.2 percent in 2015, based
on S&P estimates. This is unimpressive organic growth
given that 20 percent of S&P companies will reduce their
share count (the denominator of earnings per share) by at
least 4 percent this year through buybacks. Without that
financial engineering, earnings would be even worse.
Two primary causes of the earnings growth deceleration
over the past year are the dollar’s rise and oil prices’ collapse. The dollar appreciated 20 percent against a basket
of major foreign currencies from July 1, 2014, to June 30,
2015, although a 3 percent decline in the second quarter
suggests the trend may have peaked.
Elsewhere, several other indicators suggest the economy
is on firmer ground than GDP growth numbers imply.
Job growth is mostly solid, although we are concerned
that just 1.6 million of the 8 million jobs added since
the recession have gone to the 25-to-54 demographic
deemed prime working age compared with 6.6 million
for the 55-and-over category. The housing market has
rebounded, with home sales on pace for their best year
since 2007. Household wealth recently reached a new
high of $85 trillion.
All told, this is hardly the snapback many economists
were expecting. But muddling or not, the economy is the
healthiest it has been in years.
The halting growth pace has the benefit to investors of
dissuading the Federal Reserve from imposing anything
but a token increase in interest rates this year. With no
sustained series of rate hikes in sight, we believe the
soundest strategy is to maintain neutral positioning on
all risk assets.
3. Bonds should continue to anchor portfolios
despite this year’s decline.
Bonds fell out of favor again this spring, as they do from
time to time. But not with us. A global selloff reminiscent of the “taper tantrum” wiped out all gains from a
strong start to 2015, since bond prices fall when interest rates rise. It left bondholders with negative returns
for the first half on a total return basis. (Such short-term
6 Altair Insight • Second Quarter • 2015
Source: U.S. Bureau of Economics Analysis
declines aside, of course, investors receive semi-annual
interest payments from their bonds and can expect them
to return 100 cents on the dollar if held to maturity, barring default.)
Yet even with the setbacks to those who maintained
their bond allocations, we regard this exodus as just as
ill-advised and premature as the one that occurred two
years ago. Bond slumps tend to be moderate and shortlived. Those who stayed the course in 2013 despite fears
of “Bondmageddon” were rewarded last year when
the Vanguard Total Bond Market ETF, our investable
benchmark for taxable bonds, returned nearly 6 percent
(tax-exempt bonds also delivered solid, slightly smaller
gains). While that scenario may not repeat itself in the
year ahead, we do not see this downturn as the beginning of a bear market in bonds.
The steep short-term drop in bond prices was not warranted by market conditions, in our view. We attribute
the rise in yields to market noise rather than any meaningful longer-term direction in fixed income.
Yields jumped higher, and prices correspondingly lower,
on signs the U.S. and eurozone economies were improving and the threat of deflation was fading, and on expectations the Fed was nearing an interest-rate hike. The
yield on the 10-year U.S. Treasury note rose to 2.50 per-
cent after beginning the second quarter at 1.93 percent;
Germany’s 10-year Bund yield spiked to above 1 percent
from just 0.05 percent in less than two months.
We believe those assumptions of economic resurgence
were too rosy. That became even clearer this month
when the International Monetary Fund cut its projection of 2015 global economic growth. The economy is not
strong enough to sustain yields much higher than their
current level. We believe that the most likely scenario is
that the U.S. 10-year will be range-bound and furthermore it would not surprise us if rates yet again confound
the experts and trade at the lower end of the range.
Spikes have become commonplace but are difficult if not
impossible to time. The U.S. 10-year bond yield has experienced a short-term surge of at least 30 percent almost
annually in recent years. Yet those collective increases
have vanished: The yield is lower now than it was in
2010. Investors who fled have ultimately kept coming
back, at a cost.
There is no sensible alternative to bonds – not REITs,
dividend stocks, master limited partnerships (MLPs) or
hedge funds, all of which entail much more risk. Even if
bonds’ returns do not replicate the lofty double-digit annual gains of the 2000s, they overall are achieving one of
the primary purposes of lower-risk assets in outpacing
Altair Insight • Second Quarter • 2015 7
Record Deals in 2015
Note: Reflects only deals over $100 million; excludes spinoffs and repurchases. Annualized based on activity through May 31.
Source: Dealogic
inflation. The Fed’s preferred inflation gauge, the core
personal consumption expenditures (PCE) price index,
has hovered in a narrow range of 1.23 percent to 1.52 percent annually since early 2013.
Inflation (and Treasury bond yields, its alter ego) will not
bottom out as long as the U.S. economy continues to become more indebted, as Van Hoisington and Lacy Hunt
of Hoisington Investment Management wrote recently.
“While Treasury bond yields have repeatedly shown the
ability to rise in response to a multitude of short-run concerns that fade in and out of the bond market on a regular basis, the secular low in Treasury bond yields is not
likely to occur until inflation troughs. …”
Bonds should be the anchor of a portfolio except when
rates are going materially higher or high inflation is rampant. Neither is the case now.
4. The record M&A wave buoying the bull market in its later stages shows no sign of easing.
A trillion reasons help explain why the U.S. bull market in stocks did not lose its way in the first half as it
moved into a seventh year — 1.03 trillion, to be precise.
That was the unprecedented dollar value of announced
U.S. mergers and acquisitions after a record $635 billion
second quarter, according to Dealogic data. Globally the
first-half total was $2.3 trillion, the second-largest halfyear amount ever and the most since 2007.
Mergers by themselves do not keep bull markets afloat,
of course. But such a wave of corporate activity, including spinoffs, stock buybacks and dividend payouts, has
provided a meaningful tailwind for share prices while
demonstrating companies’ preference for returning
money to shareholders over capital expenditures.
A confluence of favorable market dynamics has created
this wave, as one of our recommended managers, Aurora
Investment Management, notes: Low interest rates, high
levels of cash on corporate balance sheets, cooperative
markets and the presence of activist shareholders pushing for shareholder-friendly actions. The economy’s
mostly steady but unspectacular growth pace has contributed too, pushing CEOs to seek additional ways to
expand so-so sales and earnings.
We see those conditions continuing in the second half, if
not well beyond. M&A cycles tend to run for about five
years. Based on annual global totals since before the 2008
8 Altair Insight • Second Quarter • 2015
financial crisis, this one began only in 2013, suggesting it
could have two to three years left to run. A continuation
of muted economic growth and low interest rates, both
of which we foresee for the near to mid term, should also
encourage companies to keep buying each other in order
to grow more rapidly.
fixed income portfolio losing purchasing power.
Mega-mergers, mostly involving U.S. companies, accounted for 39 percent of the global total in the first half.
There were 31 announced deals of $10 billion or more,
such as Royal Dutch Shell’s $69.8 billion purchase of BG
Group, Charter Communications’ $56.8 billion takeover
of Time Warner and Anthem’s $50.4 billion bid for Cigna.
We expect the ongoing bustle of merger activity to help
keep equity prices aloft. Once we see corporate deals ebb
and other red flags appear, we expect to become more
defensive in our positioning and recommendations unless growth increases. For now, we maintain our neutral
positioning on higher-, medium- and lower-risk assets.
The smaller deals behind the headlines are the ones that
particularly pique our interest, however. While the giant
mergers have involved premiums of 10 percent to 15 percent above market prices, several of our small-company
managers have benefited from premiums upwards of 40
percent in takeovers involving Auspex Pharmaceuticals
and Rally Software, to name just two.
With earnings growth petering out and valuations getting stretched, investors should lower return expectations, especially for U.S. equities.
A recent example of boardroom action: After buying a
stake in General Electric, Harris Associates was one of
three investment managers invited to sit on a panel with
GE’s board to discuss ways to unlock value. Subsequently, in April, GE’s board announced its decision to sell off
the various pieces of GE Capital. Flat since 2013, GE’s
stock promptly jumped to a seven-year high. We believe
our client portfolios will continue to benefit from such
moves during this M&A wave.
Altair’s Advice
The Federal Reserve may raise rates once or twice in small
increments starting later this year but we still expect
rates to stay low for the foreseeable future. As we opined
at the beginning of the year and as Chair Janet Yellen has
since confirmed, the Fed will not hike rates substantially
without significant economic improvement.
Persistently low inflation reinforces our comfort level in
bonds as a core component of investments. With inflation just over 1 percent, we are not concerned about our
U.S. stock values are higher than average. Yet there are
fundamental reasons why the rally could last a while
longer, most notably the monetary actions of global central banks.
Quotes of the Quarter
“We should get used to periods of higher volatility.” – Mario Draghi, European Central Bank president
“Equity market valuations at this point generally are quite high. … There are potential dangers
there.” – Janet Yellen, Federal Reserve chair
“Poor valuations are not an obstacle for both markets (stocks and bonds) to perform reasonably
well over the next 6 to 12 months.” – Bank Credit
Analyst
“If the euro fails, Europe fails.” – Angela Merkel,
German chancellor
“We have entered a period of low growth.” – Olivier Blanchard, International Monetary Fund chief
economist
“We’re more like Homer Simpson than Spock.” –
Richard Thaler, University of Chicago behavioral
economist, on why markets are not rational
Altair Insight • Second Quarter • 2015 9
International equities continue to hold an advantage
over their U.S. peers as a result of quantitative easing in
Europe, which is set to last through September 2016. The
launch of that program this year has coincided with outperformance by European and other non-U.S. stocks, as
we anticipated.
Consumer discretionary was next again at 1.9 percent.
Utilities, the best-performing sector in 2014, was the
worst in the first half of 2015, down 5.8 percent for the
quarter and 10.7 percent for the year. Investors anticipated higher interest rates, which could lessen the appeal of
utilities’ dividend yields.
Market Data:
International Equities
U.S. Equities
Dividends and a last-day rally enabled U.S. stocks to finish in the black for the second quarter. Even so, investors’
worries about Greece and rising rates made it the weakest first half in five years for large-cap stocks.
The iShares S&P 500 ETF, an investable proxy for the U.S.
market, finished the quarter with a total return of 0.3 percent and stood at plus 1.2 percent at the year’s midway
point. In a turnaround from the outsized gains of 2014,
U.S. large caps trailed well behind U.S. small caps and
developed international equities in the first half.
Small stocks continued to outpace their mega-sized counterparts, and still-smaller micro caps fared even better.
The iShares Russell 2000 ETF, an investable benchmark
for small caps, was up 0.4 percent for the quarter and 4.7
percent at the year’s halfway point.
Growth far surpassed value as an investing style in the
first half as investors sought an extra edge for returns
at a time when the economy is growing only modestly.
Among large caps, the iShares Russell 1000 Growth ETF
returned 3.9 percent to negative 0.7 percent for the corresponding value ETF. On a smaller-companies level, the
Russell 2000 Growth ETF returned 8.8 percent through
midyear to just 0.7 percent for its value counterpart.
Value-oriented funds have been hurt by relatively heavy
exposure to the slumping energy industry and interest
rate-sensitive stocks.
Health care stocks benefited from more corporate consolidation to deliver the highest return of any S&P 500
sector for a second consecutive quarter, 2.8 percent as
measured by the Health Care Select Sector SPDR ETF.
Even after pulling back as Greece’s debt saga escalated,
foreign stocks easily outperformed their U.S. counterparts in the first half. The European Central Bank’s quantitative easing program helped to shore up prices and
hold investors’ nerves steady, pumping some 60 billion
euros into Europe’s economy every month since March
through asset purchases.
The iShares MSCI EAFE ETF, an investable measure of
non-U.S. developed-world stocks, was still up 4.4 percent in dollar terms at midyear after a 1.1 percent secondquarter decline. In local currencies, without the impact
of the strong dollar, it was up 9.2 percent. Another investable benchmark for international stocks, the iShares
MSCI All-Country World ex-US ETF, gained 2.7 percent
in dollars through midyear.
Emerging markets posted more muted first-half gains as
investors, although not panicking as they did during the
2013 “taper tantrum,” showed caution while awaiting an
interest rate increase by the Federal Reserve. The iShares
MSCI Emerging Markets ETF returned just 0.8 percent
for the first six months following a second-quarter drop.
Top-performing markets by country for the quarter included Russia with a 24.3 percent return (15.4 percent in
local currency), Hungary 21.3 percent (31.5 percent) and
China/Shanghai 12.7 percent (12.7 percent) even with its
30 percent plunge in June. Greece, not surprisingly, was
prominent among the quarter’s market losers with a 17.3
percent (10.2 percent) drop. So were Cyprus with a decline of 25.5 percent (19.1 percent) and several other of
Greece’s close neighbors in financially struggling southeastern Europe.
10 Altair Insight • Second Quarter • 2015
Real Estate
Real estate investment trusts reversed direction, moving
sharply lower as market concerns rose about the potential negative impact of higher interest rates. The pain was
felt more sharply by domestic investors, as U.S. REITs are
more rate-sensitive than their global counterparts.
The Vanguard REIT Index Fund lost a substantial portion of the gains it achieved in a more than year-long
run-up, falling 10.5 percent for a first-half decline of 6.2
percent. Internationally, REITs continue to outperform
their U.S. peers this year after trailing them 30 percent
to 3 percent in 2014 – reflecting a history of alternating
performance results. The Vanguard Global ex-U.S. Real
Estate ETF shed 0.5 percent in the quarter but was up 4
percent for 2015.
REITs stand to lose some of their appeal to investors in
a rising rate environment, as higher rates would pressure commercial real estate and REIT valuations. But increased rates also are likely to signal an improving economy, which would strengthen real estate fundamentals.
Commodities
Crude oil’s springtime resurgence coupled with the end
of the dollar’s steep eight-month ascent halted at least
temporarily the slide in commodities investments. The
iPath Dow Jones-UBS Commodity Index ETN, an investable gauge of commodity prices with a 37 percent weighting to oil and other energy products, gained 4.8 percent
in the quarter. It remained off 2.8 percent for 2015.
Markets diverged widely after heading almost uniformly
lower for months. Oil rallied 25 percent, almost all in an
April bounceback off of six-year lows, in anticipation of
slowing supplies and higher demand. Cocoa also surged,
rising 21 percent after dry weather and a lack of pesticides caused a big crop shortfall of the chocolate ingredient in Ghana, the world’s No. 2 producer. Agriculture
prices climbed nearly 10 percent on heavy rains in the
Midwest and dryness in Canada that pushed corn, soybean and wheat prices higher.
Coffee fell 25 percent and industrial metals slumped
significantly, including a more than 20 percent drop in
nickel prices, on slowing growth and reduced imports
in China.
Hedged/Opportunistic
The record pace of mergers and acquisitions in 2015 has
provided a boost for hedge fund strategies focused on
events such as mergers and restructurings. Similarly, the
trendless nature of the S&P 500 rewarded the stock-focused strategies of top-quality equity hedge managers by
putting a premium on stock-picking.
Returns of hedged/opportunistic strategies, while delivering largely flat returns in the second quarter, performed
respectably in the first half. The HFRX Equity Hedge Index, which is comprised of investable hedge funds, rose
0.2 percent and was up 2.4 percent year-to-date – double
the return of the S&P 500. The HFRX Global Index, an investable benchmark which includes international funds,
retreated 0.8 percent and was up 1.3 percent through
midyear.
Fixed Income
A reversal in the bond markets resulted in the first quarterly downturn since 2013. Blame it on the Fed: Not unlike
two years ago, when mere talk of a coming wind-down
in bond purchases by the Federal Reserve prompted the
taper tantrum, prices fell on the market’s anticipation of
an interest rate hike that is probably still months away.
The drop was not as precipitous as in the spring and
early summer of 2013, however. The Vanguard Total
Bond Market ETF declined 1.9 percent in the quarter and
was down 0.3 percent for the year. Since bond prices fall
when yields rise, that reflected a rise of 40.5 basis points
in the yield of the benchmark 10-year Treasury note,
which began the quarter at 1.93 percent and ended it at
2.335 percent for the largest quarterly yield gain since the
end of 2013. The biggest jump came in June after European Central Bank President Mario Draghi bluntly but
perhaps presciently warned investors, “We should get
used to periods of higher volatility.”
Internationally, bonds performed even worse with
the added tensions over Greece and other geopolitical
hotspots. Altair’s global fixed income investable bench-
Altair Insight • Second Quarter • 2015 11
mark, a 60/40 blend of the SPDR Barclays International
Treasury Bond ETF and the Vanguard Total Bond Market ETF, returned negative 2 percent for the quarter and
was down 3.2 percent for 2015.
The municipal bond market experienced the same ratehike jitters as taxable bonds. The admission by Puerto Rico’s governor that its $72 billion in debt is unpayable also
jolted a portion of the market (although Altair’s recommended managers own none of the island’s bonds). Market Vectors’ short and intermediate ETFs, our investable
gauge of the U.S. muni market, shed 1.2 percent in the
quarter to go negative for the year at minus 0.5 percent.
Altair Insight reflects our thoughts and opinions, which are based on data and information from various third-party sources which we
believe to be reliable. It is not intended as specific investment or legal advice. Opinions herein are subject to change without notice. Past
performance is not necessarily indicative of future results.
© 2015 Altair Advisers LLC. All Rights Reserved.
Altair Insight • Second Quarter • 2015 12
ALTAIR IS...
Managing Directors
Steven B. Weinstein, CFA®, CFP®
President & Chief Investment Officer
Joseph F. Alexander, CFP®
Consultant
Thomas C. McWalters
Consultant
Richard K. Black, CFP®
Daniel J. Sciarretta, CFP®
Rebekah L. Kohmescher, CFP®, CPA
Dennis E. Abboud
Consultant
Managing Director
Managing Director & Director of Investment Operations
Matthew D. Mochel
Jason M. Laurie, CFA®, CFP®
Associate Consultant
Managing Director
Megan A. Babowice
Bryan R. Malis, CFA®, CFP®
Client Service Assistant
Managing Director
Michael J. Murray, CFA®, CFP®, CAIA
Managing Director
Donald J. Sorota, CFP®, CPA
Managing Director
Directors and Consultants
Rebecca E. Gerchenson, CFA®
Director
Timothy G. French, CFP®, CPA
Senior Consultant
Matthew A. Gaines, CFA®, CFP®
Senior Consultant
Daniel L. Tzonev, CFA®
Senior Consultant
Associate Consultant
Jason D. Carr
Client Service Assistant
Michael F. Feurdean
Client Service Assistant
Research
Aaron D. Dirlam, CFA®, CAIA
Director of Research
Paul S. Courtney, CFA®, CAIA
Manager of Research
James Shen, CAIA
Senior Research Analyst
David C. Carpenter
Investment Communications Analyst
Altair Advisers
Altair Advisers provides unbiased investment counsel to wealthy individuals, families, foundations and endowments. In the commission-dominated world
of financial services, Altair stands apart as a firm committed to providing objective advice that is free from the kinds of conflicts of interest that are pervasive
to our industry. We currently serve a nationwide base of clients who have entrusted us to supervise approximately $4 billion of assets.
We often describe our role as a family’s independent Chief Investment Officer because we provide investment advice that reflects a client’s full financial
circumstances. Our firm has a depth of experience in advising clients on myriad financial planning, tax planning, accounting, insurance and estate-related
issues and therefore we know how crucial it is to integrate clients’ investment portfolios with all aspects of their financial plans.
Among the many accolades our firm has received, Altair and its principals have most notably been recognized in Barron’s Top 100 Independent Financial
Advisors every year since the rankings’ inception.
ALTAIR
ADVISERS
Altair Advisers llc
303 West Madison Street, Suite 600
Chicago, Illinois 60606
INDEPENDENT INVESTMENT COUNSEL®
312.429.3000 | www.altairadvisers.com