It is hard to believe that another year is nearly complete and ready for the history books. Fortunately, 2017 has turned out well, with many markets delivering solid results. This is due in large part to expanding domestic and global economies. We have seen growing prosperity, as evidenced by greater numbers benefiting from economic output. There is certainly more to be accomplished. However, we continue to move in a direction where more, rather than fewer, benefit.
The broad underlying theme that helps explain our good fortune is the expanding use of technology. In its basic form, this has affected nearly every aspect of life and the rate of change and deployment is increasing. Widespread use of data is driving more informed decisions, leading to better outcomes. Incrementally, these decisions build on themselves and result in greater advances at faster speeds.
US stock markets climbed on continued optimism even as fundamental valuations seemed to be expensive. Foreign markets, however, in both developed and emerging economies, now appear to offer better opportunities when valuations are considered. Just as expanding technology has impacted our lives, it has changed the nature of emerging markets around the world. In the recent past, many emerging economies were tied to the price of commodities. They lacked transparency and economic-friendly rules of law. Those tenets have shifted and will continue to do so. We believe that stock prices in these markets have not adjusted to properly reflect these changes and therefore trade at meaningful discounts to businesses found in developed nations with similar risk profiles.
Cheaper valuations and greater growth prospects are a wonderful recipe for enhanced returns. With this as the backdrop, we have deliberately expanded our allocation over the last few months to these markets through the use of broad-based equity market index funds. Within fixed income portfolios we have taken a similar approach by adding an index fund of US Dollar denominated, sovereign-backed debt from a basket of emerging countries with outstanding prospects.
We expect these adjustments will increase exposure to some of the best, broad-market opportunities that exist today.
As we approach the holidays, we take time to reflect on the year that has nearly passed and are grateful for the good fortune we’ve enjoyed. In that context we extend a simple ‘thank you’ to all our partners, for whom and with whom we invest. These important relationships bring meaning to our professional endeavors and fulfillment to our personal lives.
We wish you a joyous holiday season filled with fun, laughter and good cheer.
Daniel Aronson, CFA Bruce Langer, CFA Ben Frey, CTP