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Fourth Quarter 2014 Commentary

Fourth Quarter 2014 Commentary

It would have been difficult to guess the direction, duration and rate of change in the price of crude oil at the beginning of the Fourth quarter.  After peaking earlier in the 2014, the Energy sector tracked sideways until the end of September.  Then in early October, and again in late November the Energy sector declined sharply.  As a result, SignalPoint increased its energy exposure during the Fourth Quarter by between 29% and 38% depending upon the portfolio strategy.  The performance of the Energy sector had a significant impact across all of our equity portfolios.

While SignalPoint didn’t predict the oil price decline, we believe we were prepared for such a decline. From early 2012 through September of 2014 the Energy sector had appreciated nicely, resulting in SignalPoint trimming the position on several occasions.  The trimming process allowed us to establish a very healthy level of cash which we used to increase the energy holdings during the recent quarter.

Other portfolio positions also saw an accumulation of share inventory: the Value Line 100 Most Timely Stocks; U.S. Industrials; U.S. Energy; and U.S. Basic Materials. Continued weakness in some international positions also triggered buys including: the Euro sector, International Mid Cap Value, International Small Cap Value, International Mid Cap Growth, International Small Cap Growth and International Large Cap Value style ETFs. We also were buyers of the global corporate dividend ETF in two of our income strategies.

Overall buying reduced the cash positions in the various equity portfolios by the end of the Fourth quarter. The equity portfolios’ cash reserves were reduced between 4% and 12% while balanced portfolios ranged from unchanged to about 10% off previous highs. We believe it is still unclear as to when energy prices may stabilize or begin to return to prices seen earlier in 2014.

Income portfolios had strong relative performance in 2014 driven by the recovery of long bond and REIT ETFs. The interest rate outlook continues to be unclear as to when and how much future interest rates might rise. The cash allocations in the income portfolios will at some future time be used to add to share count and improve distribution payouts.

Finally, our Market Risk Indicator (MRI) ended the Fourth quarter basically unchanged. The only unsettled part is the divergence of investor sentiment relative to near term market direction.

We appreciate our clients’ continued loyalty and support. We remain vigilant watching for signs of market stress and looking for opportunistic trade potential. Please feel free to call or write should you have further questions.

 

Thomas M. Veale

Chief Investment Officer

SignalPoint Asset Management, LLC

SignalPoint Asset Management, LLC
Office Hours: 8:00 am—4:30 pm Monday—Friday
1201 E. Walnut Street, Springfield, MO 65802
Phone: 877.769.9980