Author: cathy

We want to provide an update regarding year-end planning within your taxable investment accounts.  As noted in our previous communications regarding the recent market backdrop, 2018 has been a period of increased volatility coupled with mixed performance.  We understand that experiencing these fluctuations can be unsettling, however, these conditions potentially present a silver lining during an otherwise less than desirable investment environment.

We have been and will continue reviewing portfolios for opportunities to employ a strategy known as “tax loss harvesting.”  This strategy enables an investor to recognize a loss for income tax purposes by selling a security and simultaneously purchasing a similar security to maintain market exposure.  While there are imposed limitations established by the Internal Revenue Service on how this loss can be applied, this can serve as a valuable tool for reducing your taxable burden.  Additionally, any losses that exceed current year gains can be carried forward to offset any capital gains realized in future years.

We’ve also been actively monitoring mutual fund capital gains distributions, which generally take place around the end of the calendar year.  These distributions vary in size from fund to fund, based primarily on portfolio turnover, and are passed through in the form of short-term and/or long-term gains.  This creates the potential for a substantial taxable event to the shareholder, and we’re continuously reviewing the sizes of the distributions relative to the individual investments so that we can possibly navigate around any gains that would exceed unrealized gains within each position.  While a majority of our managers have stated their expected 2018 distributions to be nominal, there have been instances that warranted action to avoid exposure to an undesirable tax consequence.

We are regularly reminded that successful investing requires an ability to live with a good bit of uncertainty.  This reinforces the importance of focusing on the things we can control, such as

1. using a thoughtful, risk-based approach to portfolio design,
2. reducing manager fees and expenses, and
3. minimizing tax consequences.

As such, we’ll continue to be proactive and use available tools and strategies as we monitor and assess ongoing market actions.  If you have any questions, please don’t hesitate to reach out.  We thank you for your continued trust and allowing us to serve your family.

As you are likely aware, volatility has continued in October and we’ve seen some dramatic price swings.  Equity markets experienced another steep selloff yesterday as selling pressure increased late in the day.  For example, the S&P 500 Index declined 3.1% and erased its year-to-date gain.  As we’ve discussed in the past, it’s always hard to pinpoint exactly what’s driving markets in the short-term as they can behave irrationally.  However, markets seem to be reacting to a combination of ongoing geopolitical risks, in addition to the potential negative impacts of a trade war with China.

Some companies have mentioned in their recent earnings announcements rising input costs resulting from tariffs, which has a negative impact on profit margins.  Of the 110 S&P 500 companies that have reported third quarter earnings thus far (as of Tuesday’s close), nearly 40% of them have addressed the impact of tariffs directly in their earnings report or during analyst calls.  Despite the overhang of tariffs, according to FactSet, 80% of companies have reported better than expected earnings results with an overall growth rate of 19.5%, well above long-term averages.  Analysts continue to expect S&P 500 corporate earnings to grow at double-digit levels in the fourth quarter, but a more moderate growth rate of 10% in 2019 as the benefits of the corporate tax reductions anniversary.

Our investment committee met recently to review our quarterly asset allocation research and to discuss portfolio positioning and strategy.  Given that there are no material changes to our base case assumptions (continued modest economic growth accompanied by a modest increase in interest rates and inflation), we think it’s appropriate to add selectively to equity positions on recent weakness.  Specifically, we think emerging markets stocks present an attractive risk/reward profile and we plan to rebalance portfolios back to their target weight.

While equities traded higher today, we do expect volatility to remain elevated as we continue through third quarter corporate earnings season and approach mid-term elections.  Our portfolios continue to have higher levels of cash/short-term fixed income as “dry powder” to potentially take advantage of attractive investment opportunities.  Additionally, our overweight to flexible/alternative strategies has the potential to benefit from higher market volatility.

Please don’t hesitate to get in touch should you have any questions.

As our personal and professional lives continue to shift more toward the digital landscape, we wanted to share information regarding a password management service that we’ve recently implemented at Colony Family Offices, LLC.  We feel such a service could be beneficial to better safeguard your data from ever-increasing online risks.

In order to provide certain services to our clients, we maintain an internal database of usernames and passwords to various online institutions and portals to access financial information for monitoring, reporting, and  advising.  Because data confidentiality is so important to Colony, we have implemented a password manager that utilizes encryption and other security features to add an additional layer of protection against malicious activity.

Password managers are typically software applications or, more commonly, web-based services that warehouse your login information in an encrypted vault accessible only by your master password.  Commonly offered features include the ability to randomly generate and store strong passwords able to withstand certain types of vulnerabilities and attacks, sync across multiple platforms (e.g. from your phone to your computer and tablet), share access to specified sites with family members or trusted individuals,  and allow for contingency planning if an unforeseen event or emergency should occur.

Colony chooses to use LastPass for its track record and certain elements designed for a business application, though there are several other good alternatives available for consideration. Dashlane, KeePass, 1Password, and BitWarden will also provide a similar core level of protection, features, and benefits.  While a password manager isn’t foolproof and does not guarantee your protection from breaches or hacks, it’s an inexpensive way to proactively enhance your security.  We encourage you to engage in safe online habits such as using strong, hard-to-guess passwords , not relying on your web browser to store login information, and  not sharing a common password across multiple sites.

If a password manager is something that interests you, we suggest researching which application or service provides the features most important to you and using your best judgement when deciding.  Our expertise in this area is limited to our own due diligence and experience, but we’d be happy to discuss further if you have any questions.

Global equity markets experienced a significant selloff yesterday.  For example, the S&P 500 Index declined -3.3% on Wednesday—the largest daily decline since February 8, 2018.  All sectors in the S&P 500 slumped Wednesday, with technology stocks down nearly 5%.  It was also the fifth consecutive session of declines and longest losing streak in nearly two years.  As we’ve acknowledged in the past, experiencing volatility is an expected byproduct of investing—but it can certainly be uncomfortable.  As such, we wanted to share our perspective.  We’ll also be distributing a detailed market review/outlook commentary soon.

Nothing fundamentally changed yesterday, but clearly market sentiment can shift quickly.  While no one factor triggered the drop, some investors are highlighting fresh news of damage to corporate earnings from the trade war, along with intensifying pressure from the global shift away from monetary stimulus.

Reminiscent of the equity market selloff in February of this year, recent weakness comes amidst a backdrop of higher bond yields.  Last week Federal Reserve Chairman Jerome Powell said that the central bank is “a long way” from getting rates to neutral, a fresh sign that he believes more hikes are coming.  Responding to both Powell’s comments and stronger US economic data, government bond prices declined while the yield on the 10-year US Treasury rose to 3.2%, its highest level in seven years.

Also worth noting is that midterm election years in the US tend to be more volatile.  Analysts often chalk it up to uncertainty since midterms typically see the incumbent president’s party lose seats.  Yet, historically markets have recovered as election day nears and in the aftermath of the vote, regardless of the outcome, as uncertainty begins to fade.

In the near-term, investor focus will likely shift to the third quarter earnings reporting season which kicks off on Friday.  According to FactSet, S&P 500 companies are expected to report year-over-year earnings growth of 19%, but guidance for 2019 will be key.  Large banks, such as JP Morgan, Citigroup, and Wells Fargo, are among the first companies to report.  Strong bank earnings could be a positive catalyst—it’s often said that they set the tone for the rest of the earnings season as these companies are highly levered to the economy.

We’ll continue to assess recent developments in order to determine any changes to our macro views and portfolio positioning.  At this point, we still view the global economic backdrop as being in pretty good shape—but as we’ve previously communicated, the outlook has become more uncertain in the face of ongoing trade disputes and rising interest rates.  Although it’s certainly uncomfortable to experience, we do expect volatility to remain elevated as global central banks seek to tighten monetary policy and as geopolitical risks persist.

In terms of portfolio strategy, we continue to target a slight underweight position in US equities while emphasizing large cap, high quality stocks and more reasonably priced international and emerging markets.  We’ve also continued to maintain an elevated cash/short-term fixed income position as “dry powder” that we could put to work if recent volatility presents what we think are attractive investment opportunities.  Recent market action also reinforces the rationale for owning certain flexible/alternative strategies that have different risk and return drivers versus traditional stocks and bonds—and that can potentially benefit from elevated market volatility and increased dispersion.

As always, we are happy to discuss.  Please don’t hesitate to get in touch.

(Charlotte, NC) – The principals of Colony Family Offices® are pleased to announce that they received regulatory approval from the North Carolina Banking Commission to open Colony Trust Company℠, LLC.  It is the first newly chartered North Carolina public trust company in over eight years.  Colony Trust Company will provide boutique trustee and estate administration services to families with significant wealth.  The creation of an independent trust company was initially based on the idea of  solving for the specific needs of existing client families.  As a public trust company, Colony Trust Company will be available to offer services to new families as well.

As professional trustees, we have the technical expertise and flexibility to serve families in a variety of ways including:

• Sole corporate trustee with full fiduciary powers
• Co-trustee with an individual trustee to guide them in their fiduciary role
• Directed trustee with a third-party committee, trust protector and/or investment advisor
• Successor trustee to the grantor
• Executor, co-executor or agent
• Trust protector

Colony Trust Company’s leadership team is comprised of the following individuals:

• Eric D. Ridenour – President, CEO, Treasurer & Trust Officer
• Kathryn R. Habluetzel – Chief Operating Officer, Controller & Trust Officer
• W. Thomas Byrd – Chief Investment Officer
• C. Shannon Elliotte – General Counsel, Secretary & Trust Officer
• Sarah K. Brock – Chief Compliance Officer & Trust Officer
• David M. Parker – Portfolio Manager & Trust Officer

Our officers will serve under the direction of the Board of Directors which include key officers and three external board members: T. Michael Henderson, Marshall T. Walsh and Carter G. Thompson.

We will serve client families by exercising sound and prudent judgement based upon our fiduciary duties, experience, and collective knowledge.  By truly understanding our families, we can be nimble, flexible, and practical in serving their needs.

Equity markets have been lackluster of late and volatility has spiked over the last couple of days.  The S&P 500 Index has declined about -4.5% over the last two trading sessions (Thursday and Friday), erasing it’s year-to-date gain.  As of today’s close (3/23/18), the broad global equity market is now down about -3% so far in 2018.  While market volatility is an expected byproduct of investing, we recognize that experiencing it can be uncomfortable.  As long-term investors we seek to avoid the behavioral urge to overreact.  Although we typically look through short-term volatility, we are reaching out here to provide some perspective on recent market action.

Multiple narratives have likely contributed to the recent declines, underscoring how the busy news cycle has rippled through markets.  From the Wall Street Journal this morning, “It’s a sharp reversal from last year, when stocks embarked on a nearly uninterrupted rally, despite a slew of geopolitical, economic and political news events that many analysts had expected to pull stocks lower. Whereas nothing seemed to phase the market in 2017, everything seems to be phasing it in 2018.”

The most notable reason for the recent selloff was an announcement by the Trump administration that it would impose tariffs on about $50 billion of Chinese imports.  That fueled worries that a trade war could escalate, which would likely undermine the recent phase of synchronized global economic growth.  China did retaliate with its own set of levies on about $3 billion of U.S. goods, though it said it was readying further measures.

We’ll continue to assess recent developments in order to determine any changes to our macro views and portfolio positioning.  At this point, however, our base case assumptions include a continued modest global economic expansion accompanied by a modest increase in inflation and interest rates.  This backdrop should remain supportive of equities and other risk assets—but valuations remain somewhat elevated.  As you know, we’ve continued to maintain an elevated cash/short-term fixed income position as “dry powder” that we could put to work if recent volatility presents what we think are attractive investment opportunities.

As always, we are happy to discuss.  Please don’t hesitate to get in touch.

(Charlotte, NC) Colony Family Offices® is pleased to announce Kathy Habluetzel and David Parker as the newest members of our team.

Kathy and David are newly admitted Members of Colony Family Offices, LLC.  They both bring valuable experience to Colony and have served ultra-affluent families across the Southeast.  Kathy and David bring a comprehensive understanding of the specific needs of multi-generational families.

Kathy has devoted more than 3 decades to the finance, tax and accounting industries. She began her career with Arthur Andersen LLP, and then served as the Tax Partner in charge of the Carolinas Private Wealth Services team at Grant Thornton LLP. In 2010, Kathy became an investment advisor before moving into the role of Family Office Director for members of the Belk Family in early 2014. Her prior experience will strengthen and enhance Colony’s internal operations and external collaboration with third-party tax, legal and accounting advisers of the clients we serve.

David brings more than 25 years of leadership experience in the wealth management industry.  Prior to joining Colony, he was Managing Director at Abbot Downing, the family office practice at Wells Fargo, in Charlotte for seven years.  There he was responsible for overall relationship management and business development activities.  He joined Calibre, a predecessor firm to Abbot Downing, in 2004 as a Director of Client Management in Winston-Salem, NC.  Prior to Wells Fargo, David held various investment management roles including portfolio manager, research director, and equity analyst at SouthTrust Bank serving affluent families, foundations and endowments.  David began his career at a single-family office in Birmingham, Alabama.  His prior experience will add depth and breadth to our overall wealth and investment management capabilities.

These recent additions to our team will enhance the services we make available to our clients, including:

• Assisting families through major life transitions (i.e., the sale of a business, business succession for the family-owned enterprise, the death of matriarch/patriarch, and financial education of younger family members).
• Design and implementation of appropriate investment allocation strategies consistent with the client’s overall tax, estate and financial planning goals and objectives.
• Enhanced recordkeeping that includes tax and general ledger reporting for families with complex family holding structures such as LLCs, corporations and trusts.