Prophecy Impact Investments Rebrands as Falcons Rock Impact Investments
In order to improve brand familiarity and better convey the environmental benefits, our sister company has been renamed. Visit the Falcons Rock Impact website to learn more about responsible investing and to start exploring your porfolio today.
Visit website.

 

What Plan Sponsors Need to Know About SRI Investing
This article from the International Foundation of Employee Benefit Plans defines the basics of SRI and highlights how retirement plan ficuciaries can implement the concept. Greg Wait of Falcons Rock gives offers his take on why it makes business sense.
Read August article.

 

Investing with Environmental & Social Impact.
In the cover story of their 2018 Guide to Wealth Management, the Milwaukee Business Journal interviewed Greg Wait of Falcons Rock to discuss the new definition of SRI, Sustainabile Responsible Impact investing, and the incresing number of clients making it a priority.
Read May article.

 

Companies’ Social Impact Increasingly Scrutinized by Investors.
Greg Wait of Falcons Rock gave his insight into the recent rise and benefits of socially responsible investing (SRI) for this BizTimes article from February 5th.
Read February article.

 

History Has Steered Folks to Environmental, Social and Governance Investing.
In this Milwaukee Journal Sentinel article from July 15th, Tom Saler explores socially responsible investing (SRI) and breaks down some recent high-profile examples.
Read July article.

 

New Firm Targets Socially Responsible Investors.
In this article from January 9th, Milwaukee Journal Sentinel reporter Kathleen Gallagher explores Greg Wait's launch of a new company that combines socially responsible investing and online investment advice.
Read January article.

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's October 17th article, Kathleen Gallagher and Greg Wait discuss the recent rise of environmental, social and governance, or ESG investing. Greg provides insight into how reduced risk and improved returns are causing money managers to include ESG investing in their portfolios. Read October article.

 

Responsible Investing: Creating Financial and Non-Financial Value by Greg Wait. Do investors sacrifice returns in pursuit of their goal of advocating for a better world in which to live?
Learn more.

 

Ten-Year History of Investment Manager Performance by Greg Wait. As part of our process, we have conducted investment manager research and due diligence resulting in manager or fund recommendations to our clients. Here are our findings.

 

The month of September, 2013 marked the 10-year anniversary of Falcons Rock serving our clients and building relationships. We are grateful for all the years of friendship, loyalty, and support, and look forward to our next decade!

 

Investment Trends, with insights by Greg Wait. In the Milwaukee Journal Sentinel's July 20th article, Kathleen Gallagher and Greg Wait discuss the rising U.S. Treasury rates and using duration as a measure of risk. Greg's comments relate to whether we'll be "looking back on this short-term increase in yields as the warning shot for the much-anticipated longer-term rise in interest rates." Read July article.

 

Dec 9, 2012, Journal Sentinel's Kathleen Gallagher interviewed Greg Wait on current Investment Trends. Read the full article: "Low-quality stocks continue to provide strong returns."

 

 

Investment Trends column of Milwaukee Journal-Sentinel shows Top-Down investment strategies are achieving positive results.
Read article on Top-Down Investing

 

Additional articles in the Milwaukee Journal Sentinel featuring Falcons Rock:
One is a fascinating story about a Mequon drug development company, which has a few of our clients as private investors.
Read article about our angel investors

 

Another features us in the Market Trends column: Strategy targets uncertain economy - and how Falcons Rock confronts specter of slow growth.
Read how we help clients get ready

 

There is a great deal of debate in the investment industry regarding active vs. passive (indexing) investment management.  We researched this topic and the results might be surprising to you.  Please see our research paper on this subject...more

 

We have experienced interesting situations with our clients. To update you on our firm’s activities, check out examples of recent work we have done for our clients...more

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US SIF Member 2017

Performance Measurement – Friend or Foe?

 

2018 Q3 Client Letter

Performance Measurement

When I wrote last quarter’s client letter, our Milwaukee Brewers were in first place at the All-Star break, and what do you know…they finished the season with the best record in the National League and are in the MLB playoffs for the first time since 2011.  Baseball is a game that is driven by statistics:  batting average, home runs, runs batted in, runs scored, slugging percentage, on-base percentage, OPS (on-base plus slugging percentage), batting average on balls put in play, exit velocity on hit balls…the list goes on and on, and these examples are only for hitters.  There are equally as many statistics measuring the performance of pitchers and fielders.  All these statistics make for fun comparisons of current-day ballplayers vs. players of yesteryear.  But, how meaningful are they at predicting the success of a baseball team?  As highlighted in the book Moneyball: The Art of Winning an Unfair Game, a general manager who makes use of the right analytics has a chance to build a good team over the course of a long season; however, once the short playoff series begin, all those statistics have far less predictability.

In his book, The Tyranny of Metrics, Jerry Muller takes a fascinating look at our cultural obsession with metrics, with examples from education, medicine, business and finance, government, the police and military, philanthropy and foreign aid.  Muller argues that, while metrics can be helpful when used as a compliment to sound human judgment, quantifying human performance distorts reality and distracts from desired outcomes.  While the management guru, Tom Peters, embraced the motto, “What get measured gets done,” some have concluded that “anything that can be measured can be improved.”  Muller explains why this is simply not true.  I enjoy books like this, which challenge conventional wisdom…and this one hit home with me.

Here at Falcons Rock, we spend many hours measuring the results of client portfolios as well as the performance of the investment managers and mutual funds utilized in our client portfolios.  I have always found performance measurement interesting and we use many different metrics to determine the success of any given portfolio.  We consider the evaluation of risk to be equally as important as the quantification of returns, and many of you have seen our reports highlighting such statistics as alpha, beta, standard deviation, Sharpe Ratio, r-squared, and more.  Even with all those metrics, I place at least as much weight on interviews with money managers and manager commentary when conducting a thorough evaluation of a portfolio’s performance.  All performance measurement must be weighed against the market environment in which the results, good or bad, were delivered.  Sometimes, poor performance is a result of a well-designed long-term portfolio simply not being in sync with a short-term aberration in the market.  When I founded Falcons Rock, I wrote about our investment philosophy, which in part states:  “We believe that smart investment decisions are based on extensive analytical research combined with “Informed Human Judgment.”  After 15 years, I still believe this to be true and I believe that this philosophy has served our clients well.

So, in our daily lives, let’s not get too caught up in “the numbers.”  By themselves, they can be quite misleading.

2018 Q3 Market Review

In the month of August, the U.S. bull market for stocks became the longest in recorded history!  Who would have guessed that back in 2008?  Furthermore, the current U.S. economic expansion has now spanned 111 consecutive months – in one more month it, too, will be the longest stretch of GDP growth in history.  This expansion has been defined by long and steady, if not spectacular, growth.  Our country is reaping the rewards of this prolonged economic growth with very low unemployment rates as well as healthy businesses and consumer finances.
 
During the quarter, large cap stocks regained their advantage over small cap stocks and the growth style again outperformed the value style.  Every sector in the U.S. stock market generated a positive return.  The best performing sectors in the S&P 500 Index in Q3 included Health Care (+14.5%), Industrials (+10.0%) and Communication Services (formerly Telecom, +9.9%).  The “worst” performing sectors during the quarter included Materials (+0.4%), Energy (+0.6%) and Real Estate (+0.9%).    

Non-U.S. developed stocks bounced back mildly in Q3, but emerging markets stocks continued their slide.  This year, the best performing countries have included Russia, France and Japan.  Other regions around the globe are struggling, including Brazil, India, China, and Germany.  The U.S. Dollar has strengthened relative to most other currencies this year, detracting from returns for U.S. investors in international securities.

The fixed income markets were mixed in Q3, and many sectors within the bond market have produced negative total returns year-to-date.  Interest rates have risen, and bond prices have an inverse relationship to the direction of interest rates.  Short-duration bonds help protect principal in this environment.  Cash (money market funds) yields are rapidly rising, as the Fed continues its path of rate hikes.

Here are the returns for select market indices for Q3 and year-to-date 2018 (as stated in US Dollars):


Responsible Investing Corner

In June, the Global Impact Investing Network (GIIN) released its 2018 Annual Impact Investor Survey.  The GIIN is a non-profit organization dedicated to increasing the scale and effectiveness of impact investing…that is investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside financial return.  Collectively, the 225 respondents (located around the globe) invested $35.5 billion in impact investments in 2017 and plan to invest $38.5 billion in 2018.  Here are the key findings from this year’s survey:

  1. The market is diverse – impact investments are made in many different countries around the globe and in many different sectors of the market, including energy, financial services, housing, food and agriculture, healthcare, and education.  Most investments are made through private capital markets, but investments are also made in public markets. 
  2. The impact investing industry is growing – capital invested has increased by 27% for the subset of five-year repeat responders to the survey.
  3. Impact investors demonstrate a strong commitment to measuring and managing impact – most set impact and financial targets.
  4. Overwhelmingly, impact investors report performance in line with both financial and impact expectations – 91% of respondents indicated that their investments met or exceeded their expectations.
  5. Impact investors acknowledge remaining challenges that need to be addressed – including the number of available investment opportunities with a track record and the number of professionals with relevant skill sets.

Only two years after the United Nations adopted the Sustainable Development Goals (SDGs), 55% of impact investors track their investment performance to them and another 21% plan to do so in the future.  The SDGs can be found here.  Nearly three-quarters of respondents seek to address climate change through their investments.  In general, I find impact investments meaningful and impact investors inspiring!

This and That

  • As mentioned, the U.S. stock bull market is over 9 years old.  However, from 2009-2017, domestic equity mutual funds (active and index) have seen net outflows of over $1 trillion.1  Yet another indicator of investor behavior running contrary to investment performance and shows how underappreciated this bull market has been.
  • Hurricane Florence is already one of the top ten costliest hurricanes in history, with an estimated economic cost of $38 billion and rising.2
  • The “New NAFTA,” now named the “US-Mexico-Canada Agreement,” does not alter the existing framework for trade and investment and will not meaningfully alter the macroeconomic outlook for the three countries.3
  • A study of post-season baseball from 1972-2001 showed a net economic gain of about $6 million to communities where their team made the playoffs.4
  • “Not everything that can be counted counts, and not everything that counts can be counted.” – Albert Einstein

Thank you for being a loyal client of Falcons Rock.  We appreciate your confidence and trust.

Greg Wait, President of Falcons Rock

Gregory D. Wait, President
Falcons Rock Investment Counsel, LLC

1 Investment Company Institute – 2018 Investment Company Fact Book
2 Moody’s Analytics economy.com – Florence’s Price Tag Rises, September 20, 2018
3 Moody’s Analytics economy.com – Under the Hood of the New NAFTA, October 2, 2018
4 Milwaukee Journal Sentinel – Beer, Brats and Brewers: Businesses across the region prepare for playoff baseball, October 3, 2018

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