Investment Climate Oct 2017: A Paradigm Shift

In our last Investment Climate, we suggested that the “correction” many growth-oriented companies experienced in the second quarter would be short-lived and business merits would drive the values of those companies higher in the future. While some technology-related companies remained under pressure, as of the end of the third quarter, values resumed their up trend amongst broader growth companies. TFCM growth portfolios reached the highest quarter-end values in the history of the firm! While the drumbeat of “record highs” continues and the financial punditry gnashes its collective teeth over that fact, we remain convinced that values are still not fully reflected in most of the companies throughout our portfolio. And while 5-10% corrections should be expected at any time, barring a major external event, market values should continue higher over the coming months and years.

Income investments have been in much more of a subdued pattern in the last year as these types of investments grapple with higher interest rates and the actions on the part of the US Federal Reserve to “normalize” monetary policy. For investors who require ongoing cash flow and a more stable underlying value to their portfolio, the values represented in certain income securities, particularly high-yield energy-related issues and certain “special situation” securities, offer very good opportunities. While we believe interest rates will rise in the near and longer term, we believe the move will be gradual and won’t derail economic activity. With that in mind, we continue to prefer equity-oriented income securities and avoid most long-term, fixed-income investments currently.

What we want to convey to our clients today is that we are experiencing some of the most important shifts in our investment paradigms and themes that we have witnessed in the last 20 years! We believe there is a major transformation happening in the way computing is done and in the way the internet operates. Much of this is centered on “blockchain” technology and the re-emergence of distributed computing. The disruption that this will create will be as massive, if not more so, as the advent of the internet of the 1990s, which was built upon the centralization of data and computing power. Every company is either susceptible to this transformation or will benefit from this transformation, and you can be assured that we are feverishly researching and positioning our portfolios to take advantage of this monumental phenomenon. Stay tuned for much more in the coming quarters and years as we wade through this exciting time in the history of the world!

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