Granite Group Advisors -


2016-01-15 :: 4th Quarter 2015 Commentary

Looking Back

In 2015 we did not expect a robust equity market and unfortunately we got a little worse than we expected.  The S&P put in a positive return but only after dividends. Growth stocks did a little better with Large growth stocks returning closer to 6% but that is where the positive news stops as all other markets were negative with Emerging markets putting up the worst return down close to 17%. 

Fixed income:  Fixed income as predicted did very little this year albeit positive but barely with the aggregate index up 0.5%.    

Absolute Return Hedge Fund of Funds Were flat to negative for the year and were certainly less volatile than stocks but the best performers beat fixed income and equities. 

Real Estate Was mostly mixed and flat for the year. Prices moved up slightly but there are too many headwinds in this area for anything robust.    

Commodities Were a disaster in 2015 as every commodity plunged across the board with Oil and gas being the biggest losers followed by mining and metals. The strong dollar hurt the US everywhere.

YTD   (Total Return)

 Russell 1000  0.92%  

Mid-cap -2.44%       

Russell 2000 -4.41%

Russell 1000 Value -3.83%     

Mid-cap Value -4.78%     

Russell 2000 Value -7.47%

Russell 1000 Growth   5.67%    

Mid-cap Growth -0.20%    

Russell 2000 Growth -1.38%

MSCI EAFE  -3.30%       

MSCI Em Mkt -16.96%  

S&P 500   1.38%

Barclays Aggregate 0.5%


Looking Forward    

Equities: Last year we went against the street by saying we would have low-to-mid single digit returns for 2015. The street was looking for much more. Granite Group believes that 2016 will have much more volatility, but by the end we will be end up with low single digit returns. World GDP will be slow; higher interest rates and a full valuation is not a recipe for a robust equity market.  The one good thing is the US dollar valuation will not hit earnings as hard in 2016 as it did in 2015.  We believe the best opportunities will be overseas in International or Emerging Markets.  The valuation of those markets is reasonably low from a historical perspective. Additionally, any weakness in the US dollar going forward will help international investing.  Europe and Asia, as well as many other countries, are starting to not only do quantitative easing, they are also lowering the value of their currency similar to what the US had done for the previous six years.  All of this should be a tail wind for the international equity markets.  We do not see a recession in the US, but other international valuations are more compelling.  Another moderate return year.

Fixed income markets:   The Federal Reserve finally raised rates, ho hum. We expect 2016 to be a repeat of 2015.  The Fed will probably raise rates a bit more in 2016, but the biggest effect will be felt on the short end of the curve.  However, a lot of this movement has already been priced in prior to year-end. The Fed will take no action to shrink their enormous balance sheet so the longer end of the duration curve should be relatively stable throughout 2016.

Commercial & Residential Real Estate:  We do not expect much from the Commercial Real Estate market, as there are a lot of headwinds.  The disrupter is the internet and this has made on line shopping very easy for consumers.  The US dollar strength has pulled away a lot of overseas buyers in commercial and residential.  Additionally, demographics are not as supportive with more baby boomers retiring and downsizing. Renting has also gotten very expensive and does not have as much upside. However, demographics will be supportive of the following sectors: assisted living and university housing.

Absolute Return Hedge Fund of Funds: Hedge funds have been taken to task in the last decade for their lack of performance, but in 2016 we should see the return of hedge fund outperformance.  With very little return coming from fixed income and increasing volatile markets, absolute hedge fund of funds should outperform the fixed income markets for years to come.

Commodities:  We should, at a minimum, see some stabilization in the commodity market.  These markets have been taken down dramatically and may have some upside as the year moves on.  Unless the US dollar dramatically weakens it should be a tepid year in the commodity sectors.   

Have a happy and successful New Year! And hopefully a quick Winter!

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