1st Quarter Market Insights & Commentary

Stocks across the globe climbed higher in the first quarter of 2017. U.S. Stocks as whole were up 5.8%, International Developed Stocks 6.8%, and Emerging Markets Stocks 11.4%. All ZRC client accounts posted solid gains for the quarter (with returns in the range of low to mid-single digits – largely dependent upon the amount of stocks in the client’s account). Manager performance relative to their stated investment objectives, benchmark, and peers continued to be excellent. Among U.S. Stocks, growth stocks outperformed value stocks. This was largely driven by technology stocks and healthcare stocks (as the prospects for major changes to the healthcare system dimmed).

On March 15, the Federal Reserve raised the federal-funds rate by 25 basis points to a range of 0.75% to 1.00%. This is the second time in three months the Fed increased its benchmark interest rate a quarter point amid rising confidence the economy continues to strengthen. Investment grade U.S. Bonds as a whole returned 0.82% for the quarter – contrary to the common misconception that rising interest rates spell doom for bond investors.
As interest rates rise, bond prices are supposed to decline. Therefore, rising interest rates are a headwind for fixed income investors. While that is certainly true, it only explains one variable (out of dozens, if not hundreds) in the fixed income markets. In reality, it’s impossible to account for (much less know) how every variable will affect short-term market movements (and three months is a very short period of time). ZRC takes a cautious approach to fixed income investing and we have little concern about how our carefully selected fixed income investments will perform if the Fed continues to raise rates at its current measured pace.

Looking Forward

Long-term, we believe stocks will continue to be the dominant growth engine in investment portfolios. Eight years into the current bull market, there will eventually be a significant (greater than 20%) pullback. In the meantime, broadly speaking, global equity valuations appear fairly reasonable. Looking at the chart below, stocks in many regions of the world are trading slightly above their historical averages, but nowhere near their all-time highs.

Looking at the next chart, U.S. equities have generally outperformed other developed markets since the end of the 2008 – 2009 global financial crisis and emerging markets equities since 2013. Though many developed market economies continue to struggle with economic growth, history tells us they will eventually get it right. For that reason, foreign stock and bond investments remain an integral part of ZRC managed accounts.

Annual ADV Disclosure Brochure and Privacy Policy

At the bottom of every page of our website you will find links to our updated Form ADV and Privacy Policy. The Form ADV (also known as a “Disclosure Brochure”) is an important regulatory document we file with the United States Securities and Exchange Commission (SEC). As a Registered Investment Advisor, ZRC is required to update this document whenever there are material changes at the firm (and at least annually). The only material change since the last filing is that Assets Under Management increased to $177,284,285.
The brochure also provides important information about ZRC, its business practices, and the qualifications of those associated with the firm. We recommend you read it and the Privacy Policy – and contact us if you have any questions. If you would like to receive a copy of our brochure, privacy policy, or code of ethics – please contact us.
We are pleased to welcome two new clients to the firm this quarter. It’s an honor to serve you and we look forward to many years of working together. Thank you to those who continue to share what we do with friends and family.
If it has been some time since we reviewed your financial goals or something has changed in your financial life (you have been granted stock in your company, changed jobs, lost a loved one, or are nearing retirement) – please contact us to schedule a meeting. As always, we are here to be a resource to you and those important to you.


Sources: Morningstar, Inc., Dimensional Fund Advisors, FactSet, Inc. and T. Rowe Price Associates, Inc.
*U.S. = S&P 500 Index; Developed Europe = MSCI Europe Index; Japan = MSCI Japan Index; Emerging Markets = MSCI Emerging Markets Index. The forward 1-year P/E ratio is the capitalization-weighted average of the price of each stock in an index divided by the consensus estimate of forward 12-month earnings for that stock as of November 30, 2016.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.