As you may now know the United Kingdom (UK) held a referendum of the people last Thursday to decide whether or not the United Kingdom should stay in or leave the European Union (EU). The people voted to leave the EU by a margin of 51.9% for Leave to 48.1% for Stay. Great Britain will be exiting the EU (BREXIT!)
It was widely predicted that the UK would vote to stay in the EU and as such this vote has caught financial markets completely by surprise. The immediate reaction, in all financial markets, was pure shock on Friday.
The U.S. stock market suffered its worst drop in 10 months. Equity markets around the world retreated. The most pain was felt in European markets. Interest rates around the world moved lower. The 10 year U.S. Treasury yield dropped to 1.57%, near a record low. The 10 year German Bund yield dropped to a negative -.05%.
Gold, on the other hand, moved to a 2016 high price of $1319 per ounce as investors fled other assets.
Great Britain's Prime Minister, David Cameron, resigned as a result of the stunning defeat of his campaign to stay in the EU. This brought more anxiety to markets.
Amid swirling uncertainty over the impact of BREXIT, the Dow Jones industrial average tumbled 611 points, or 3.4%, to close at 17,400. The Standard & Poor's 500 fell 3.6%. The losses dropped both stock measures back into negative territory for 2016. The Nasdaq composite, which already had been in the red for the year, fell 4.1%. The drop erased roughly $800 billion in U.S. market value, as measured by the Wilshire 5000 index.
The British pound sterling dropped 10% to a 31 year low, and the euro fell by 3.8%. The yen surged, briefly trading below 100 yen to the dollar for the first time since November 2013. In short, June 24th 2016 will go down as one of the more painful days in the history of financial markets.
As a client of 5T you might be asking yourself, how did this impact my investment portfolio?
As part of our ongoing commitment to safeguard and grow our client's assets we began the process of orienting our portfolios to be long volatility, market neutral, and to mitigate risk from government and central bank policy intervention during the second half of 2015 and into 2016.
This simply means we are attempting to limit downside risk and hopefully position portfolios to make money regardless of volatile movement in the markets.
In our Q1-2016 newsletter we outlined our view that both equity and fixed income markets, around the world, were likely to experience increasing volatility in 2016.
In the aftermath of the vote to leave the EU global financial markets experienced their most volatile day of the year. It was a true test of our investment philosophy and we are happy to say that we believe that we performed well across all portfolios and strategies.
We continue to manage a variety of investment strategies, each of which can produce differing results at different inflection points in markets.
All of them have been holding substantial cash balances in anticipation of significant market dislocations that could create interesting buying opportunities.
Some of them are structured as very tactical strategies that can potentially profit from high volatility.
We look forward to reviewing this with you in your next meeting to make sure that you completely understand your portfolio.
We believe that markets will remain volatile and uncertain for the foreseeable future. While that may be true there will also be great opportunities for astute investors.
All the best,
GOVINDA QUISH, PAUL KRSEK, AND JEFF ROUSH
UPDATED LAST ON MAY 18, 2016 BY PAUL KRSEK:
ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH MANAGEMENT.
SINCE 1998 Paul Krsek HAS BEEN the sole author of ELLUMINATION. While the views and representations found in the newsletter generally reflect the attitudes and opinions of the 5T WEALTH MANAGEMENT members and staff, Krsek wrote without editing was therefore is solely responsible for the content and opinions contained in ELLUMINATION.
AS OF JANUARY 2016 ELLUMINATION IS NOW A COLLABORATIVE EFFORT OF THE INVESTMENT POLICY COMMITTEE OF 5T WEALTH MANAGEMENT, LLC. THAT COMMITTEE IS CURRENTLY COMPRISED OF GOVINDA QUISH, PAUL KRSEK, JEFFREY ROUSH AND PHILLIP LAMPE.
ELLUMINATION does not represent the opinions of Fidelity, Fidelity Institutional Brokerage Group, NFS or anyone employed by Fidelity in any capacity. Neither Fidelity, Fidelity Institutional Brokerage Group, nor NFS, nor anyone employed by Fidelity in any capacity has participated in the creation of ELLUMINATION and they are not responsible for the contents or distribution of ELLUMINATION.
ELLUMINATION is written to provide general information to clients, friends, and affiliates. The contents of ELLUMINATION are not to be taken as individual investment advice. No investment decisions should be made based on the opinions or information offered in ELLUMINATION.
5T WEALTH MANAGEMENT does not represent that the information in ELLUMINATION is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change or modification without notice.
The investment portfolio models or management services mentioned in ELLUMINATION may or may not be available in some states, and they may not be suitable for all types of investors.
5T WEALTH MANAGEMENT manages accounts with various histories and investment objectives. Various accounts may be managed differently from time to time.
Paul Krsek is the acting CEO of 5T Wealth Management working with the investment committee in the establishment and selection of client portfolio strategies. Krsek may make reference to model portfolios and investment strategies including but not limited to Dividend Diamonds and Mendocino. Krsek is responsible for making all trading and management decisions for all client accounts being managed according to specific portfolio models and strategies. A description of the models and strategies can be obtained by contacting Paul Krsek at 5T Wealth Management’s Napa headquarters.
During 2016 Govinda Quish will take over as Chief Investment Officer. Krsek & Quish are currently collaborating, along with the other members of the Investment Policy Committee on strategy and portfolio construction.
Not all accounts managed by 5T WEALTH MANAGEMENT are "modeled" accounts. We strongly urge our clients to understand which model, if any, are being used to manage their accounts.
From time to time 5T WEALTH MANAGEMENT receives requests from clients to purchase securities that are not included in the model portfolio to which they are assigned. Effective May 24, 2006, 5T WEALTH MANAGEMENT has encouraged clients to hold such securities in a separate account for the client. Because 5T WEALTH MANAGEMENT is a "fee only" registered investment advisor" it charges its normal management fee for monitoring such securities in the separate accounts in which they are held.
5T WEALTH MANAGEMENT makes every effort to exclude securities that are 'requested by the client' from the modeled portfolio accounts.
The investment objectives of various accounts and models may be substantially different from one another. Therefore topics or investments mentioned in ELLUMINATION may or may not apply to specific managed accounts and/or models.
Trades or adjustments to accounts mentioned in ELLUMINATION may or may not happen in every account managed by portfolio managers at 5T WEALTH MANAGEMENT.
If you are not satisfied with the investment results in your account it is your responsibility to inform Krsek or Quish to discuss possible changes that can be made to the account to accommodate and satisfy your needs.
The assets held in managed accounts at 5T WEALTH MANAGEMENT may include stocks, bonds, cash, commodities, foreign exchange or mutual funds or exchange traded funds (ETF's), money market accounts or limited partnerships that represent the same. They are subject to market fluctuation and the potential for losses. The assets are not insured. The value and income produced by these investment products may fluctuate, so that an investor may get back less than they initially invested.
The portfolio managers at 5T WEALTH MANAGEMENT do not guarantee results.
Past performance should not be considered an indicator of potential future performance. If you do not consider yourself suitable, either emotionally or financially, to experience volatility and/or losses in financial markets, you should not invest.
Model accounts and strategy performance quoted in the ELLUMINATION Newsletter and elsewhere to clients do not represent actual results accruing to individual accounts. Simple annual return does not represent “time weighted return” as reported individually to clients in their quarterly reports prepared using Orion and other performance report firms who are external service providers. The reports provided via Orion and other providers are for informational purposes only and clients are urged to carefully review and compare it with the separately delivered custodian statement. The information is based on pricing information provided by third party sources and is believed reliable, but its timeliness, accuracy and completeness are not guaranteed.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities or other instruments mentioned in it.