September 2015 Newsletter to Clients

Enjoy this month’s edition that features an update on the economy and stock markets in addition to highlights on TINY, BGT and JATTX.

Segments of the global economy are showing vulnerability; especially China. It is experiencing a slowdown which is worse than the markets previously expected. Japan, Europe and many of the emerging markets are pursuing aggressive monetary policy measures to stimulate growth. The U.S. economy remains in recovery with steady job gains and early signs of wage pressure. The Federal Reserve is preparing to finally exit the unconventional monetary policy easing of the last 7-8 years. Volatility in stock prices has re-emerged as the markets try and digest the weak economy in China and its possible effects on the recovering U.S. economy. Uncertainty leads to volatility and volatility leads to opportunity. 

Per a recent write up by JANUS, all stocks were impacted by the recent volatility in the markets while “nothing has actually happened that is dramatic enough to have changed the long-term view of most of the individual companies we hold”. For example the biotech industry most recently experienced a sell-off when the slowdown from China was announced, but this industry is not tied to Chinese economic growth. Long term conviction in positions which are effected by broad sell-offs create great opportunities.   

Harris & Harris Group, Inc. (TINY) has been a disappointing choice as a venture capital investment. The nanotechnology industry is exciting long term, but I fear we may not live long enough to benefit from their strategy with this fund. As a result of this new attitude toward this holding, we are reducing portfolio exposure to it. Lessons: Don’t expect every decision/choice to work and go with your winners. No one likes to admit mistakes.

BlackRock Floating Rate Income Trust (BGT) should benefit from the expected increase in short term interest rates by the Federal Reserve, possibly this month, but if not, according to the ‘experts’ certainly by the end of this year. Higher interest rates will benefit floating rate investments, like the ones owned by BlackRock. Rising cash flow ordinarily results in higher share prices. Often clients inquire when we plan to sell BlackRock. We will not sell until a relatively stable investment paying more than BlackRock (currently 6.1%) with a fair expectation of keeping up with inflation becomes available.

Janus Triton Fund (JATTX) is now closed to new investors, even if one already owns the fund in another account. For example, if I currently own it in my IRA and open a new account, I cannot purchase the fund in this new account but I can add to the position within my existing account. Rules are rules. The managers are suffering from their success with large inflows of cash. We have selected a new fund, Meridian Small Cap Growth (MSGAX) which operates like Janus. The managers happen to be the same as those who started the Janus Triton Fund so we know management very well.

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.