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All-Client Investment Committee Meeting
February 8, 2018
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COMBOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Agenda
I. Welcome & Introductions: Rick Lawrence
II. Economic Fundamentals and CFM Strategy: Brad Bickham
III. Bonds and Alternatives: Josh Miller
IV. Equities - 2018 Indicators/Forecast: Dave Eads
V. Closing Remarks: Rick Lawrence, Brad Bickham
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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CFM Update & Introductions
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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CFM Staff
• Employees – 26• Investments, Operations, Service, Advisory and Financial Planning
• Interns - 3
• Rick Lawrence – President and CEO• Brad Bickham - Managing Partner and CIO• Meagan D’Angelo – Principal | Sr. Advisor• Josh Miller - Principal | Sr. Advisor• David Eads - Principal | Sr. Advisor• Jordan Kunz – Financial Advisor• Barbara Lommen – Associate Financial Advisor• Viki Falus – Senior Financial Planner• Greg Francis – Trader and Analyst• Bekah Pickerell – Client Service Manager• Shannon Knight – Client Service Manager• Kait Seiffert – Client Service Manager• Joe Keupper – Client Service Manager• Floyd Pierce – Client Service Manager• Anne Kimmell - Receptionist
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Economic & Market Fundamentals
Brad Bickham
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2017 & 10 Year Index Returns
2017 10 Yr
• Bloomberg Barclays
US Aggregate Bond 3.5% 4.0%
• S&P 500 21.8% 8.5%
• MSCI ACWI 23.9% 4.9%
• MSCI EM 37.2% 1.7%
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Will economic growth continue?
We expect the economy to continue to grow at around 2% in 2018.
Potential for upside to estimate based on tax changes or stimulus; however, both the amount and timing of any changes are uncertain and are not in our forecast.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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GDP Forecasts
Q4 2017 GDP forecast around 3.2%, NY Fed 3.9% Q3 2017 Actual: 3.3 percent annual rate
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Unemployment has steadily improved since peaking in 2009.
We are reaching peak employment, except there is some slack in the U6 and participation rate.
Full employment will lead to rising wages, an important ingredient to a rising economy. It could ultimately lead to inflation and corporate margin pressures.
Recession is very unlikely with employment so strong
U6 Unemployment Rate Labor Force Participation Rate
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Outlook - Positive Global Growth
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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European recovery is accelerating
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Economic confidence is rising around the world
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Global investment is rising –especially in the emerging economies
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_Source: Thomson Reuters Datastream / Fathom Consulting
Net balance
2006 2008 2010 2012 2014 2016 2018-60
-50
-40
-30
-20
-10
0
10
20
Germany FranceSpain ItalyPortugal Euro area
Negative deposit rate+ TLTRO I
QE 1 QE 2 +TLTRO II
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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We continue to expect inflation to remain below or near average into 2018 _________________
The Fed can be slow in raising rates as long as inflation remains low
Inflation is picking up, but will remain low
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Interest rates should rise modestly in 2018
Rates have moved higher recently, but remain low by historical standards. ___________
The Fed has raised the target fed funds rate to 1.25 – 1.50%. They indicated rates may be raised 2-3 times in 2018.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Corporate Profits
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Market Valuation
We are keeping a close watch on
valuations, which are above historical
averages.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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International market earnings and valuations
International EPS growth has lagged
U.S. EPS growth since the financial
crisis.
We see structural issues abroad that
are limiting international growth and corresponding
valuations.
If these issues are addressed,
international markets may outperform.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Conclusion
• Economy and earnings are positive, and accelerating• Foreign economies are picking up steam, and if their earnings
follow then international investments should outperform• Interest rates have risen modestly so far, but a “too hot” economy
would force the Fed to raise rates faster• Valuations in the U.S. aren’t at extreme levels, but they are well
above average• Investors are too optimistic right now and there hasn’t been a
meaningful correction since 1Q16 • As long as the economic fundamentals hold, and inflation doesn’t
accelerate then a correction is only that and investors should maintain their current allocation strategy.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Blending Technicals & Fundamentals
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Fixed Income & Alternatives
Josh Miller
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Size of the Bond Market
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2017 Fixed Income Returns
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2017 Bond Alternative Returns
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2017 Portfolios• Client portfolios beat the Barclays Aggregate Bond
benchmark• Usage of both core fixed income and alternative asset
securities led to outperformance• Core Fixed Income – US Treasuries, Mortgage Back
Securities, and Corporate Bonds • Alternatives – High Yield, Emerging Market, and
International• Outperformance with corporate bonds and the
following alternative asset classes:• High Yield Bonds• Emerging Market Bonds• International Treasuries• Low Volatility Equity Funds
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Why Own Bonds?
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Why Own Bonds?
• Capital Preservation
• Income
• Growth
• Diversification – low correlation to equities
• Restful sleep
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Why Own Bonds?
• Decline in portfolio Breakeven Return
Decline Breakeven Return
• -1% +1.01%• -5% +5.30%• -10% +11.00%• -20% +25.00%• -70% +233.00%
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50% 100%
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Bond vs. Stock Volatility – Capital Preservation
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Bond vs. Stock Volatility - Correlation
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Blend of Bonds and Stocks -Correlation
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Outlook – recession unlikely, but will happen eventually
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Outlook – Modestly higher rates
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Outlook - Area of Concern
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Outlook Higher Volatility
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Bond Alternatives Can Increase Returns vs. Bonds Only
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_
10 Year Outlook 2% – 5%
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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2018 Equities Outlook
Dave Eads
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Index Name Index Covering Total Return 1 Yr
Risk (Standard Deviation) 3 Yr
BBgBarc US Agg Bond TR USD US Bond Market 3.5% 2.82BBgBarc Global Aggregate TR USD Global Bond Market 7.4% 4.89MSCI ACWI IMI NR USD Global Stock Market 23.9% 10.48MSCI EAFE NR USD International Stock Market 25.0% 12.00MSCI EM NR USD Emerging Market Stocks 37.3% 15.57S&P 500 TR USD US Stock Market 21.8% 10.07
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2017 Index Performance
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_44
Blending Technicals & Fundamentals
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_45
Corporate Profits
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_46
Market Valuation
We are keeping a close watch on
valuations, which are above historical
averages.
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_47
Valuations Remain Reasonable(on a global basis)
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_48
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_49
International Mean Reversion?
Potential International Outperformance
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
_50
Currencies
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
___________________________________________________
_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Currencies
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Market Cycle – Where Are We Now?
Source: optionalpha.com
BOULDER • DENVER • LOVELAND/JOHNSTOWN • COLORADO • T: 303.443.2433 • WWW.COLOFINANCIAL.COM
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_______________________ INVESTMENT MANAGEMENT AND FINANCIAL COUNSEL
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Closing Remarks
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