Winter Letter to Clients {Conclusion}

Below is the conclusion to our Winter Letter.

 Major US indices ranged from 4.9% in the small cap universe to low double digits for larger capitalized US equity indices. That was in stark contrast to what occurred in almost every other asset class across the globe.   International markets returns were mostly to the negative, commodities saw double digit declines. Oil confounded all predictions by its massive decline.  Bonds also went against grain and advanced in price as their yields declined.  Very few market experts or economists predicted this at the beginning of 2014 as well.  So much for group-think.  Most thought rates would rise and bond prices decline. 

JP Morgan shows that a typical asset allocation strategy returned 5.2% last year*. Our view is that asset allocation should be the foundation to your portfolio, setting forth your personal game plan specifically identifying where and how to invest your money.  Asset allocation is important in two distinct ways.  First, asset allocation begins by understanding that except during a few extraordinary periods of time {like the last six months of 2009} some investment classes will be winners and some will be losers.  This should vary over time.  The addition of investment styles that perform differently than the rest of your portfolio {i.e. have a low correlation} can reduce overall portfolio volatility.  There will be other investments that partially offset that volatility, both on the upside and downside, which should help to produce more stable returns.  The 2^nd reason asset allocation is important is that it helps investors keep a long-term perspective and avoid knee-jerk reactions.  Investors have a tendency to chase the best performing segments of the market while shunning poor-performing areas.  Yet, it is incredibly difficult to guess what areas will continue to shine and what the next market leaders will be.  Asset allocation keeps you in the game from this. 

We further break asset allocation down into various portfolio strategies that we also define for risk.  It is hoped that this combination will in the long run damper portfolio volatility while contributing to long term total return via our various investment styles and per each client’s unique risk/reward characteristics.

* JP Morgan Asset Management, Guide to the Markets:  4Q | 2014.  This publication is updated quarterly and is full of useful charts and statistics.  The subjects covered include the economy, the stock and fixed income markets as well as international sectors and commodities.  You can access it at www.JPMorganfunds.com, go to “Insights” and then click on “Guide to the Markets”.  I will be happy to furnish you a copy of the periodic table on asset returns from which this information is derived if you would like. 

Christopher R. English is the President and founder of Lumen Capital Management, LLC.-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for private investors and also manage a private investment partnership. The information derived in these reports is taken from sources deemed reliable but cannot be guaranteed. Mr. English may, from time to time, write about stocks or other assets in which he or other family members has an investment. In such cases appropriate discloser is made. Lumen Capital Management, LLC provides investment advice or recommendations only for its clientele. As such the information contained herein is designed solely for the clients or contacts of Lumen Capital Management, LLC and is not meant to be considered general investment advice. Mr. English may be reached at Lumencapital@hotmail.com.

**Long ETFs related to the S&P 500 in client and personal accounts.