2014 First Quarter
Now that was a cold winter! It was easily the coldest we have had since the 1970's. That said, most of us who live in Wisconsin expect a cold winter from time-to-time. The difference is that this winter had an impact outside of the -20 degree temperatures and the two inches of snow every time the temperatures went above 10 degrees Fahrenheit: This winter, people did not venture outside of their homes and that impacted everything from the restaurant industry to housing. It would be my guess that a lot of the sales that did not take place in the first quarter will be pushed forward to the second quarter. Obviously, some businesses like restaurants may have a difficult time recouping their lost sales, but home sales should rebound pretty substantially in the months of April and May.
It was interesting to see our stock mutual fund performance. In fact, many of the funds that underperformed last year (First Eagle U.S. Value and First Eagle Overseas) were some of our best performers in this relatively flat environment. That is what we would expect to take place. In booming markets, our index funds should do well while in flat or negative markets, our value funds should hold up better. The Primecap and Amcap funds continue to do very well, though biotechnology stocks - which make up a portion of their portfolios - have been riding high and might be due for a correction.
Our intermediate bonds, which was the hardest hit category last summer when rates spiked up pretty quickly, were one of our strengths this year. Many of our intermediate bonds were up around 1.5% in the first quarter.
As I look over the next few months, I believe we could be in for a rough patch as the volume drops and uncertainty picks up going into the summer months. When the volume drops, price swings tend to be over-exaggerated and any uncertainty about geopolitical events (e.g. Russia/Ukraine) or earnings will add to the volatility.
We will need to watch what happens with Ukraine. I thought it was interesting this past quarter when the markets rallied after President Obama announced sanctions against some of Russia's leaders. I went into that day expecting some big downward pressure. Instead, the markets were glad the sanctions were not as punishing as many had thought or hoped they would be. The fact that Russia is building up their forces on their border with Ukraine is a concern of mine and could be the spark that sends the markets down. I am anticipating a 10% or more correction at some point this year simply due to the profits we saw last year. Then again, I was not anticipating a 32% gain for the S&P 500 last year. Since no one knows what the future holds, we remain diversified in well-managed value funds for downside protection and index funds for any upside potential. I still believe equities are the place to be over the next five to ten years.