Good news doesn't sell ads

  • Emotions are running high due to political “what-if’s”
  • But very little has changed in terms of market fundamentals
  • Thinking as a long-term owner and buying pessimism when possible

Look at any newspaper, television channel, or social media app and the intensity of politically supercharged emotions becomes apparent. The old saying that good news doesn’t sell is probably worth repeating here. Regardless, the rhetoric and actions of the Trump administration is front and center everywhere one looks, with talking heads often ascribing current market action and future forecasts to the recent political winds of change. We think this is a mistake.

The general economic mood has certainly been strongly positive. On Friday, the closely followed University of Michigan consumer sentiment indicator reached the highest levels in 13 years. Not since 2004, have consumers been so optimistic about their financial situation. Richard Curtin, the director of the consumer survey said that consumers “reported much more positive assessments of their current financial situation due to gains in both incomes and household wealth, and anticipated the most positive outlook for their personal finances in more than a decade”.

In contrast to this level of optimism and the cacophony from the news media, markets have been quiet. Similarity, fundamental valuations and long-term outlooks for most asset classes have remained much more stable than many investors might guess. What should we make of this? Probably not too much. 

Being a relaxed long term owner

Long-time Wall Street analyst Lucian Hooper wrote “What always impresses me is how much better the relaxed long-term owners of stock do with their portfolios than the traders do with their switching of inventory. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he pays smaller capital gains taxes; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by ‘thinking too much’”. 

Contrast this sound advice with the wonderful double self-contradictory “advice” delivered by Will Rogers in one-liner fashion. “Don’t gamble. Buy some good stock. Hold it till it goes up, then sell it. If it doesn’t go up, don’t buy it!”. (For extra credit, can you spot both contradictions?) We are convinced that many “investors” foolishly try to follow Rogers’ “advice”! 

Buying pessimism when possible

While we certainly want to think as long term owners and avoid hasty decisions, the other component of our investing strategy is to take advantage of market opportunities that come from other market participants’ emotional decisions. We seek to identify periods of both overwhelming fear and panic and also of wild optimism and euphoria. In the first case, we can benefit from the resulting bargains and in the second, we can lower our risk by steering clear.

Famous value investor Sir John Templeton remarked “People are always asking me where is the outlook good, but that’s the wrong question. The right question is ‘Where is the outlook most miserable?’” He expands on the thought noting that “There is only one reason a share goes to a bargain price: Because other people as selling. There is no other reason. To get a bargain price, you’ve got to look for where the public is most frightened and pessimistic. Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die on euphoria.”  

So buying pessimism and selling euphoria is a great plan! Just figure out where the market is trading on the handy chart above and buy or sell accordingly. Of course, as Mike Tyson famously quipped, “Everyone has a plan until they get hit in the mouth!”. We try to moderate our expectations regarding our ability to measure and determine where in the cycle a given asset class is at any point in time. In fact, as long term investors we are doing well if we can merely tell whether we’re closer to pessimism or to euphoria and then over or underweighting a given position accordingly.  


SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR.  INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS.  ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

Leave it alone!

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Some things just ought to be left alone. My son and I have often disagreed on this point. "Leave it alone!" "Why are you touching that?" "Stop rolling the window up and down." "Would you please stop pushing that button?" "Don't bother your sister." "Turn the windshield wipers off." "DO NOT PLUG THAT SCREWDRIVER INTO THE POWER OUTLET!"

Many investors to share his tendencies.

Meb Faber wrote a great study on various asset models called Global Asset Allocation. The book is a detailed performance analysis of eight "reasonable" but very different allocation strategies over the most recent forty year period.

These portfolios had stock allocations as low as 25% and as high as 90% (Warren Buffet's famous 90/10 allocation). They included a bond allocation from 10% on the low end to 55% on the high end. Real assets (commodities, real estate, natural resource equities) ranged from 0% in, two of the eight portfolios, all the way up to 50%.

While the reading is admittedly a bit dry, the conclusion is remarkable. Over the forty year period, these eight very different strategies all produced annual returns within 2% of each other (8.5% to 10.4%)!

On the surface this might not seem all that amazing, after all it matches what we've all been told about investing for the long run, right? However, consider that for "shorter" periods of seven to ten years (that surely must have felt like an eternity to under-performing investors) it wasn't uncommon for a given allocation strategy to have been outperformed by up to 100% by other strategies. That brings a whole new meaning to patience, doesn't it?

But the penalty for lacking patience can be harsh. The often quoted and annually updated DALBAR study shows that actual composite mutual fund investors returns have averaged only 2-3% over a thirty year period in which stocks returned better than 11% per year and bonds returned more than 7%. The only possible explanation for this huge performance discrepancy is investors buying after period of price appreciation and selling after periods of losses.

The last few weeks have been an excellent example of the temptation to "touch things" as investors have bid up industrial stocks (e.g. the Dow Jones Industrial Average or DJIA) and sold off gold mining stocks (the Philadelphia Gold and Silver Index or XAU). As often happens when prices change, sentiment (mood) indicators are now depressed for the mining shares and ebullient for industrial stocks. Does this make sense? Thirty years from now, we can be fairly confident that industrial companies will still be doing industrial things, and miners will still be mining gold. Trees won't grow to the sky, and gold won't become worthless. On the contrary, over many years, economic expansions, and recessions, it is quite likely that both US industrial companies and gold will maintain substantial value. However if you had to take either a share of General Electric or a gold coin, and then play Rip Van Winkle for a century, I bet you'd take the coin!

Understanding all of that, why wouldn't a rationale long term investor be more inclined to buy a little bit more of what is on sale and a little bit less of what has been marked up? First of all, my son would tell you it's because sitting still is tough sometime. Secondly, our human brains have learned that doing more of what feels good is fun. But following those normal psychological instincts flat out doesn't work for investing. Prices go up and down as a normal part of markets and the best way to lock in poor long term investment performance is to change strategy when it doesn't "feel good". Fortunately, good habits can eventually be learned with enough reinforcement...my son no longer tries to plug things into power outlets!


SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR.  INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS.  ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

Natural Resources

Summary:
•    Natural resources can add portfolio diversification and stability
•    Natural resource stocks are a good option and…
•    appear historically under-weighted and undervalued


The Case for Natural Resources Equity Investments
Natural resources are things like corn, cattle, wheat, coffee, iron ore, copper, natural gas, timber, oil, silver, and gold. They are sometimes consumed directly, as food and gasoline are, and they are also important inputs to the economic processes that create goods and deliver services. As input prices rise, the economic profit usually decreases in an economy. To use a very simple example, if a bakery must pay more for wheat flour and is unable to raise prices by a corresponding amount, the bakery’s profit will decline. Therefore, it follows that resource prices can often move inversely to the general economic ebb and flow. 

Unlike financial assets like stocks and bonds that derive their value through a combination of expected cash-flows and the interest rate at which those cash flows are priced, natural resources are valuable in and of themselves. While often volatile, with significant gains and losses in the short term, this inherent value leads to price stability and reduced risk over longer periods of time. 

By investing in companies that produce, harvest, manage, or conserve natural resources we can gain stock market returns (the equity risk premium) while also obtaining the diversification benefits of the natural resources themselves. The following charts from GMO show the long-term diversification benefits of including resource equity investments in an investment portfolio (Note: These charts specifically refer to energy and metals stocks due to the availability of long term historical data for these specific types of resource equities. Public investment options in agriculture equities have only recently become more widely available, but similar conclusions apply):

Despite these noteworthy portfolio benefits, investors generally do not have significant natural resource equity exposure. In recent years as commodity prices retreated, both the US S&P 500 and the global MSCI ACWI stock market index exposure to energy & metals dropped by more than 50%: 

However, current valuations of natural resource stocks are near 90 year lows when compared to their general stock market brethren:

In summary, natural resources can provide excellent diversification for investment portfolios and currently appear under-weighted and undervalued by many investors. By including these types of investments as specific asset classes and increasing our allocation to them, we may improve our long-term portfolio stability and return.


Reference:
White, Lucas. Grantham Mayo Van Otterloo & Co. LLC. An Investment Only a Mother Could Love: The Case for Natural Resource Equities. 2016. www.gmo.com

SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR.  INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS.  ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

Politics and Policy

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Trump vs. Clinton

Elections, and the political campaigns leading up to them are a fascinating, if painfully long, process of measuring a population’s mood. Hillary Clinton has essentially been running for president since she finished runner-up to Barack Obama in 2008 while it’s been over a year and a half since Donald Trump entered the race as an almost completely overlooked candidate. This 2016 presidential election is an unusually stark contrast seemingly between the ultimate outsider and the ultimate insider. Given this, hysteria and hyperbole are to be expected (see recent Brexit similarities). This race is emotional, and that makes it even more interesting than usual.

The electorate’s mood has darkened in recent years. Hope has been largely replaced by anger. Both Bernie Sanders and Donald Trump used anger against the establishment, against corruption, and lack of economic progress for the middle class to fuel their surprisingly strong candidacies.  With elections and markets both performing as barometers of mass psychology, it shouldn’t come as much of a surprise that there is a correlation between them. However, the degree of correlation between market performance leading up to elections and the results of those elections may indeed be surprising. 

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The chart above by Strategas Research Partners shows that the stock market performance over the three months preceding a general election has predicted whether the incumbent party has won or lost the election with amazing accuracy. In an astonishing 19 out of 20 elections since 1928, positive stock market performance in the August-October time-frame has led to an incumbent win and poor stock market performance over those months has resulted in “throwing the bums out”. 

Now some statistically well-versed readers may note that “correlation does not imply causation”. Of course, it doesn’t. In fact, we think is that market performance and election outcomes are likely to be coincident symptoms of either optimistic or sour public sentiment. No guarantee this coincident statistic will “work” again, but for those of you interested, 2170 on the S&P 500 is the number to keep in mind.  Current prices levels around that same level lends support to recent media reports of essentially a dead heat. 

Interest rates and monetary policy

For the first time in recent years, the US Federal Reserve and its interest rate policies have become an important political topic. The markets have undoubtedly become focused on central bank policy. Long term return forecasts are increasingly driven by outlooks for interest rates with much ink being spilled arguing the how and why of interest rates, inflation (or lack of inflation), and monetary policy. 

Since 1990, inflation and unemployment have fluctuated, but neither increased nor decreased substantially when measured over the entire period. However, interest rates have declined markedly. Why? By aligning the starting points and stripping out all labeling, the following chart attempts to break down the conundrum into the simplest possible graphic:

inflation_unemployment_interestrates_2.png

Unemployment spiked up following the recession of the early 1990s, the bursting dotcom bubble, and the Great Recession of 2008-2009. Inflation reacted during these events but both of these primary indicators of Federal Reserve Policy (the dual mandate) are at roughly the same levels today as they were nearly 27 years ago. However, interest rates are much, much lower. Why?

We’ll leave this question unanswered for now, as it is a complex subject requiring more nuance than the duration of this letter allows. However, we do feel that one primary driver is the fact that short term interest rates are set by human central bankers and not the free market. Humans have a (usually quite reasonable) tendency to “error on the side of caution”. However, as Milton Friedman noted, there is no free lunch in economics. Avoidance of short term risks can have substantial longer term effects.

Furthermore, policy (both political and monetary) has the ability to time-shift consequences. This makes ex-post facto determination of cause and effect difficult. Finally, the tremendous demographic, geopolitical, and technological changes seen in recent decades have probably masked certain feedback processes and allowed the low interest rate trend to persist longer than it otherwise might have.

Regardless of the reasons for low interest rates, the fact remains that real returns are much more elusive today than they were in the past. As investors, we need to address this in our strategy and also in our expectations. The strategy implications are to monitor and limit overall portfolio risk, focus on reducing interest rate exposure to the extent possible, and looking for opportunities to invest in unloved and underappreciated assets.

Oasis of growth?

Speaking of unloved, when was the last time you read a positive news story about any of the emerging market countries (or the group as a whole for that matter?) From impeachment in Brazil, to corruption in Russia, to bubble fears in China and the attempted coup in Turkey, the news has been fairly negative. Compare the recent news drumbeat to the following chart of estimated future economic growth put out by Fidelity (time-frame 2016-2035): 

Fidelity_EMGrowth.JPG

Of course the above numbers are only forecasts. Individual outcomes will absolutely vary from a priori estimates. However, we can often increase our odds by taking a long look at asset classes that seem to have decent long term fundamentals, and are also temporarily “disliked” by the market.  Emerging countries are good examples this concept.


SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR.  INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS.  ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

 

Tale of Two Bulls

Bull Markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.
— -Sir John Templeton

2016 has truly been a tale of two bull markets. With a nod to Sir John Templeton, we’ve seen a young bull market in metals (particularly notable in the precious metals) born in the depths of pessimism. At the same time the biggest old bull of them all, the global bond market has staggered to new highs as talking-heads muse about “permanently low interest rates” and ask absurd questions (“is inflation too low?”). Investors these days want bonds so badly (euphoria), they are willing to guarantee themselves a loss in order to own them. Astounding!

Gold Bull

Gold began its new bull market back in January of this year. At the time, pessimism toward gold stocks was off the charts. Miners were absolutely hated and had been battered to thirteen year lows. Many of the companies were trading at levels last seen when gold traded near $300 per ounce. From that depressed level the precious metals mining stocks have run dramatically higher dwarfing the performance of other asset classes.

Are precious metals miners over-bought and over-valued now after that tremendous run? While they are certainly due for a breather (and many are in fact correcting as this note is being written), we feel that precious metals mining stocks remain a favorable asset class from a long-term perspective for three reasons:

  1. Their product, gold and silver, have tailwinds. Investor confidence in extreme monetary policy is waning. The commodity bear market has ended with generally beginning to rise as supply cuts take effect. Additionally, gold’s inverse correlation with other financial assets shines in an environment where investors are looking to insure against trouble in their other portfolio holdings.
  2. Mining company fundamentals are improving. The carnage in the sector in recent years forced much needed operational discipline and an emphasis on cost control. These efforts are now beginning to show with improved cash-flows and bottom line profits.
  3. The relative valuation of mining stocks compared to the price of the metal is coming off a 20-year nadir and still has room for substantial upward mean-reversion even after recent price gains. (As an aside, the Producer:Product ratio can be a good long term sentiment indicator. In the case of oil producers, the ratio is high relative to trend indicating some persistent optimism)

Bond Bull

In marked contrast to the young metals bull, the bond market has been going up (with interest rates going down) as long as anyone can remember. That mildly flippant observation isn’t really as much of a stretch as it might initially seem. Imagine a young twenty-five-year-old analyst starting a Wall Street career back in 1981 when the last major bond bear market ended. Our young analyst would now be nearing retirement age having NEVER seen persistently rising interest rates.

The Financial Times reported in early August that the global “pile” of bonds bearing negative interest had reached $13.4 Trillion. We discussed the extreme nature of such events in our late-April commentary (http://www.svanecapital.com/perspectives/2016/4/29/negative-interest-rates) when this number was a “mere” $7.8 Trillion. The degree of enthusiasm and belief in bonds as an asset class tends to take a long time to develop (the bull ages). Thirty-six years ago, in the infancy of the bond bull market, bonds were commonly referred to as “certificates of confiscation” and bond investors were labeled “vigilantes”. It is noteworthy that this disparagement was loudest with bond interest rates in the high teens. In hindsight, those rates proved to be historic bargains and a long bull market was being born.

Recently, the general decline in interest rates, and hence the bond bull market, has continued even as commodity prices, real estate prices, wages, and rents (all directly or indirectly major components of the CPI) have begun rising. Former Fed Chair Alan Greenspan was recently quoted telling Fox Business’s Maria Bartiromo that he suspects inflation is beginning to rise: “I think we are on the edge now of a significant change in the global outlook.  And it’s a very slow and very turgent but very persistent move from deflation to inflation.  We’re seeing the very early signs of a process of inflation rising.”

Time will tell...and that's no bull!


SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISOR.  INFORMATION PRESENTED IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. INTERNATIONAL INVESTING INVOLVES SPECIAL RISKS INCLUDING THE POSSIBILITY OF SUBSTANTIAL VOLATILITY DUE TO CURRENCY FLUCTUATIONS AND POLITICAL UNCERTAINTIES. AN INVESTMENT CONCENTRATED IN SECTORS AND INDUSTRIES MAY INVOLVE GREATER RISK THAN A MORE DIVERSIFIED INVESTMENT. THERE IS NO ASSURANCE THAT A DIVERSIFIED PORTFOLIO WILL PRODUCE BETTER RETURNS THAN AN UNDIVERSIFIED PORTFOLIO, NOR DOES DIVERSIFICATION ASSURE AGAINST MARKET LOSS.  ANY GRAPH PRESENTED CANNOT IN AND OF ITSELF BE USED AS THE SOLE DETERMINANT IN MAKING AN INVESTMENT DECISION. GRAPHS ARE HISTORICAL DEPICTIONS AND HAVE INHERENT LIMITATIONS IN MAKING INVESTMENT DECISIONS AND CANNOT PREDICT THE FUTURE RESULTS OF ANY INVESTMENT. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.