LSA Connect

Chart of the Week

Last Friday, the nonfarm payrolls numbers, a closely watched gauge regarding the employment market, for the month of March were announced at a disappointing 126,000 new jobs, a far cry from the 245,000 economists estimated. This was, no doubt, a big miss, and is being seen by many as just another indication the Fed will not raise rates this year. However, when put in context, these claims seem overblown. With the unusually cold weather, west coast port strikes, and steep drop in energy prices, the employment market was bound to take a hit. Despite these issues and the poor March number, payrolls are up 261,000 on average the past 6 months, the exact same as the previous 6 months. This number is volatile in nature, having a standard deviation of around 70,000, meaning that 1 in 20 reports will be around 140,000 off the mark. Basically, this latest report is something to look out for, but for now should not be seen as anything more than normal volatility.

  Chart of the Week

These charts show the movement of the S&P 500 versus a couple of properly screened actively managed mutual funds during two periods of market downturn. With the S&P 500 soaring the past 6 years, it is easy for clients to question the merits of active management.  There is no doubt, nor disputable evidence, that most actively managed funds will underperform their index in strong bull markets and a low interest rate environment. That said, there are still managers that do outperform and with the appropriate screening process, investors can benefit from identifying these top managers and building portfolios. This is especially true during bear markets. A study by Sungarden Investment Research found that in the last two down market cycles, the index only beat 34% and 38% of its active management competitors, even when accounting for survivorship bias.

It cannot be stressed enough that investing is not all about what you make, but what you keep. Risk management and downside protection are fundamental in enhancing compound returns, and are nonexistent in passive management. If you are unsure of these qualities in your own investment process, email us at info@lsaportfolios.com, or follow this link to schedule a live webinar http://ow.ly/KfWRr.