Mid-Year Investment Update
Automation is currently impacting our global economies. In an article published by The Economist, titled “Taking Flight,” the evolution of drone technology is discussed in great detail. Until recently, the marketplace for drones had been divided into two main spaces, toys and weapons. The vast majority of worldwide spending on drones (approximately 90%) can be attributed to military uses, however the majority of drones in existence have been created for everyday consumers (2 million units sold in 2016). Now, a new segment of this industry is rapidly evolving for commercial use cases in sectors such as agriculture, construction, and shipping. Drones offer tremendous benefits for enhancing corporate productivity, which should trickle down to consumers paying lower prices for goods. But, the other edge to this sword is the impact that automation can have on employment. As companies are able to generate greater profits with less demand for human capital, unemployment could begin to rise again. In fact, many of the jobs lost during the great recession have been replaced with lower paying ones (1). As automation (including drone technologies) continues to grow, these lower paying jobs could be lost to more efficient, less expensive machines. The result would be the dwindling of the middle class, and a widening gap between the upper and lower classes. Understanding the trickledown effect that automation can have on our economy should be an increasingly important aspect of future legislation, as our leaders guide us into a rapidly changing global ecosystem.
- The Economist. June 10, 2017. “Taking Flight: Commercial Drones are the Fastest Growing Part of the Market.
- If this is a topic you would like to explore in more detail, we encourage you to pick up a copy of “Rise of the Robots: Technology and the Treat of a Jobless Future” by Martin Ford. Ford’s novel was named Business Book of the Year in 2015 by McKinsey & Company.
Click here to download Additional Year- To- Date Performance Data
As you can see in the attached above, the first half of 2017 has started off exceptionally well for equities. A hypothetical growth model has gained 10.60%, with a conservative model gaining just 5.35%. The major performance enhancers thus far have been international equities, both developed and emerging. The international space (measured by MSCI ACWI Ex-US) is up 14.45% year to date compared to the US market which is up just 8.93% for the year (measured by Russell 3000). Investment grade fixed income (measured by the Barclay’s Aggregate) is up just 2.27% for the year, which is the major detractor from performance in conservative portfolios. If you are a conservative investor, remember the reason you own fixed income, for diversification from equities and to serve as the anchor in your portfolio. The goal of these portfolios is to avoid the roller coaster of returns that can come from equity investments. You will note that current 10 year treasury rates are at 2.31%, with 1 year treasuries at 1.24%. Comparing these rates to the year-to-date returns of the Barclay’s Aggregate (2.27%) fixed income has done fairly well to start the year.
Overall, we are still cautiously optimistic about long term returns in investment portfolios. Global asset allocation has been a detractor from performance for several years, as the US markets have continued to perform well. At some point we believe this trend will reverse itself (as it has to start the year) and should become the leader in generating positive returns. For long term investors, we believe that global diversification will provide better long term returns as markets flow in and out of favor.
If you are interested to learn more about the performance of your specific investment portfolio please reach out to our office to discuss with one of our financial advisors. We will continue to monitor global trends, like the increasing significance of automation as an economic force, as we aim to help our clients reach their financial goals. Remember, in the end our job is to help you and your loved ones meet your financial goals.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
