Highlights: 2nd Quarter Produces Portfolio Gains on Broadening Economy

6. 
   Corp. Earning Should Show Solid Growth in 2^nd Quarter
   
7. 
   Comments on Top Holdings
   
8. 
   ESG Investing: From Niche to Mainstream
   
9. 
   Avoid an After-Death Identity Theft
   

During the 2^nd quarter, client portfolios added to gains from earlier in the year as the

S&P500 index has increased by about 9% and the Barclay’s Bond index has returned

to 2.3% so far in 2017. AHIA clients have generally fared better than the overall

financial markets due to overweighting in technology stocks that have been the best

performers and under weighting energy stocks that have been the worst performers. Fixed income gains were aided by the returns of preferred stocks and closed end bond

strategies. While the portfolio returns so far in 2017 have been positive, the rest of the

year may be challenging as the historically weak 3^rd quarter has begun choppy trading

on both the stock & bond markets.

Slower pace than previously expected by economist for 2017. Bloomberg’s consensus

Growth is 2.3%, revised down from 2.7% as fiscal policing appear to be slipping towards

The economy is on 2018. Investors have to be hoping for infrastructure spending and tax cuts to spark higher economic activity. economic activity. However due to the slow political process neither initiative has progressed in the le progressed in the legislative agenda yet.

Digging below the surface of the economic, technology and services are the dominant themes. Technology is growing in numerous ways from automation robotics to virtual reality. On the less innovative side, services, especially in health care for the aging, is also a growing sector of the economy. Generally, the more advanced a person’s skills and the ability to speak multiple languages, dramatically increases economic opportunities.

Areas of the economy that are softening after several strong years include auto sales and some sectors of the real estate market. Overall, personal consumer expenditures, which account for 2/3^rd of the economy, is growing at a solid 3% annual rate. Factors supporting this advancement include growth in solid employment, higher wages, lower fuel expenses and financial market gains fueling spending by retirees.

Our macro strategy is to maintain laddered investment grade bonds with maturities from 1 to 12 years with the bulk less than 5 years. With the expectation of slowly rising longer term interest rates, a bias to shorter term bonds reduces risk and allows for the proceeds of maturing issues to be reinvested at higher rates. To enhance our risk adverse laddered bond strategy, higher yielding preferred stocks and close end bond funds investments including variable rate issues round out most bond portfolios. We would avoid reaching for high yield in lower credit quality issues as the potential returns don’t justify the risk. Oil issues are a particular challenging sector as low oil prices is making oil producers unprofitable.

4081 Tamiami Trail North, Suite C-105, Naples, FL 34103 . Andy Hill (239) 777 – 3188 . Jennifer Figurelli (239) 777 – 3129 . www.ResponsibleAdvisors.com
The most important issue impacting the fixed income markets will be worldwide central banking policies. Longer term interest rates have risen ½% to 1/% worldwide over the past year. Albeit off ridiculous low levels. As other central banks follow the lead of the Federal Reserve in reducing bond purchase strategies and raise short term interest rates, bond investors need to be aware of the changing landscape. So far investors have been anticipating the well telegraphed policy moves, so disruptions have been limited. However, if rates move beyond the recent range, say 2.75% to 3.0% on the 10-year Treasury Bond, then the risk of significant sell off in bonds would appear more likely.

The chart below shows the yield on the 10-year treasury bond trading in the range of 2.1% to 2.6% over the past year.

Over the long-term stock prices are highly correlated with corporate earnings. This year, S&P500 earnings are projected to rise by 10.5% in 2017. Technology companies have the highest projected growth this year of 14.7%. Further, the valuation of the stock market as a whole is a bit rich, but not unreasonable. Given that US companies are very efficiently operated. Often a rich valuation is a sign of confidence, not excessive speculation as it is today.

The positive earnings backdrop is clouded by changing monetary policy, growing political risks and seasonal weakness. Historically the 3^rd quarter is the worst performing for stocks. This may be in part due to vacations of professional investors.

The next issue impacting stocks over the past month has been rising interest rates. Low interest rates tend to favor growth stocks which have been the market leaders this year so far and with good reason. Growth companies like Apple, Amazon, and Intuitive Surgical are increasing the pace of innovation & investors are taking notice and placing a higher valuation on these firms. However recently, the trend of interest rates is ticking higher that is resulting in investors shifting funds from growth stocks to value stocks.

S&P500 9.3%

Russell 1000 9.3%

Russell 1000 Growth 14.0%

Russell 1000 Value 4.7%