August 2013 Insights Newsletter
Client Spotlight: Chicanos Por La Causa, Inc. (CPLC)
August 14, 2013 – Maria Jesus Cervantes, Manger of Media & Public Relations for CPLC
Chicanos Por La Causa, Inc. (CPLC) is a community development corporation committed to building strong, healthy communities as a lead advocate, coalition builder, and direct service provider. CPLC promotes positive change and self-sufficiency to enhance the quality of life for the benefit of those we serve.
CPLC was established in 1969 by community members to address the lack of resources and services available to low-income Latino communities in South-Central Phoenix. Since that time, CPLC has grown to address unmet needs and gaps in services and now serves over 125,000 individuals and their families each year. CPLC’s primary reason for existence is to change lives by developing self-sufficiency and instilling empowerment in those we serve in Arizona, Nevada, and New Mexico.
CPLC offers the promise opportunity through the following four core service areas: Economic Development, Education, Health & Human Services, and Housing.
Some of the programs included in these areas are housing counseling, neighborhood stabilization and community revitalization, emergency shelter, transitional housing, substance abuse treatment, parent education, early childhood development programs, and youth prevention programming.
While CPLC’s core competency is serving the Latino community, CPLC provides assistance to all individuals regardless of age, ethnicity, sexual orientation or religious affiliation.
Over the past 44 years, CPLC has evolved in both the services we provide and the way we provide them to ensure that we continue to best represent the community and continue to be relevant.
CPLC has developed an innovative business model that reduces the burden for public dollars to provide needed services to our community. A 501(c)(3) non-profit corporation, CPLC has created for-profit entities through private partnerships. Profits from these ventures help support the many non-profit programs that benefit the community.
We cannot possibly deliver on this promise without the valuable support of the community. CPLC recognizes the importance of community involvement in providing its key programs and services. As such, CPLC provides various opportunities for members of the community who share in CPLC’s mission. Whether it’s a donation of time or a monetary contribution, involvement in the organization is both highly desired and appreciated. Please contact us at (602) 257-0700 or firstname.lastname@example.org to learn about the many opportunities on how you can make a difference in the lives of individuals and families who need your help now.
2nd Quarter Market Review
August 14, 2013 – Nathan Erickson,CFA, Investment Strategy Manager
After a strong first quarter, the second quarter of 2013 proved to be anything but business as usual. While US markets continued at a strong pace, all other markets struggled under changing expectations in emerging markets and the future of quantitative easing. In June particularly, all asset classes lost money except cash and MLPs as markets tried to digest announcements from Ben Bernanke and the FOMC. As we review market data points, we think it needs to be in the context of two things: the correlative move of global markets in such a short time period and the subsequent reversion in July. Simply put, markets and investors had a temporary, emotional reaction that was captured in 2nd quarter performance but which quickly reversed in July.
The big news of the quarter was the potential change in Fed policy as Chairman Bernanke signaled a planned reduction of quantitative easing from $85 billion in monthly mortgage backed securities purchases to $65 billion a month. Chairman Bernanke likened the move to a car driving on the road and letting up on the gas a bit to slow down, as opposed to actually stepping on the brake. The Fed clearly sees positive signs in the economy. In the long-term, this and future decisions to decrease quantitative easing should be seen in a favorable light as it means things are getting better. However, because markets have become so used to stimulus, there remains uncertainty around a stimulus-free economy.
US large cap equities returned 2.9% for the quarter and were up 13.8% YTD through June 30th while small cap slightly outpaced with 3.1% and 15.9% over the same time periods. Despite slow growth of 1.8% GDP in the first quarter and 1.7% in the second, markets remain optimistic about the US economy. Job growth continues to be strong with approximately 200,000 jobs per month being added to the economy and housing continues to rebound.
International markets have not fared so well this year with international developed down -1.0% for the 2nd quarter and up just 4.1% for the year. Emerging markets suffered the worst – down -8.1% for the quarter and -9.6% for the year. Changing expectations around earnings growth in emerging market countries are the main driver of poor performance with China headlining the news. Efforts by the Chinese government to bring stability to investment and non-bank lending in the country have resulted in some tightening of monetary policy. However, the government recently stated that they will not allow GDP growth to fall below 7.5% as they attempt to transition that growth from primarily export driven to more consumption based. While the returns in emerging markets are challenging this year, we remain optimistic that 2-3% higher GDP growth in emerging markets over developed markets will drive their stock prices higher over the long term.
Finally, as we review fixed income, the second quarter return of -2.3% has brought down the annual return -2.4%. This is the worst quarter for bonds since 2010 and the worst half since 1994. The swift move in rates clearly spooked investors as they pulled a record $66.8 billion out of bond funds in June alone. We think it is important to keep this performance in perspective, however, and avoid conversations about abandoning bonds altogether. Since 1926, bonds have had annual losses in only eight years – about once every 11 years – and all were less than 3%. Compare this to stocks over the time period, where you had double digit declines once every eight years and have lost as much as 43% in a single year. While it’s easy to fall into the trap of moving to equities when the markets are roaring, we can’t forget the value bonds provide when equity markets are challenged.
One of the things Miller/Russell has done in the face of rising interest rates and increased bond market volatility, however, is give more flexibility to our fixed income managers to navigate the current environment. By doing this we can keep the diversification benefit of bonds while reducing overall risk to US interest rate increases. Giving our managers more flexibility to allocate across bond markets results in more diversified fixed income that pays a higher yield and is less tied to 10-year treasuries. That being said, when interest rates rise, all bonds lose money as they re-price on current rates. However, some lose less than others, and some can recover quicker due to a higher yield.
It has been said that there is no free lunch in investing… except diversification. While this wasn’t the case in the second quarter or even year to date, time and again it has saved investors from the roller coaster ride of concentrated portfolios. Our goal is not to beat the S&P 500, but to build portfolios that give our clients confidence that they will meet their long-term objectives, whether that is supporting their lifestyle or something else entirely. As we continue to monitor the global economy we will make changes where clear risks exist, and always try to improve portfolio performance or decrease volatility. Over the long term, however, we add the greatest value to our clients’ portfolios by continuing to take that free lunch.
We value the opportunity to bring the perspective of Miller/Russell to our readers and encourage you to contact us with any questions or comments prompted by the information you read. We look forward to hearing from you.
When is Enough, Enough? Important Tax Updates for 201
August 14, 2013 – Bobby Castellani, Intern
The idea of “fairness” in our tax law was an important highlight of the 2012 presidential elections, specifically whether the “rich” are paying their fair share of taxes. Even before the new tax law, the top 10% income earners paid about 70% of the income taxes. With his reelection, President Obama followed through on what he believed was the mandate from the voters, enacting tax legislation specifically impacting high income taxpayers. And based on recent statements and proposals, it is apparent that there is likely to be further tax law changes targeting this group.
The most talked about provision in The American Taxpayer Relief Act of 2012 is the increase in the top income tax rate for 2013 to 39.6%. But even that is an understatement of the tax bracket you may find yourself in. The Patient Protection and Affordable Care Act of 2010 included a 3.8% surtax on investment income for high income taxpayers (for example, married taxpayers with modified adjusted gross income (AGI) above $250,000). Similarly there are increases to Medicare taxes on wages and self employment income above $250,000, creating top rates of 2.35% and 3.8% respectively. Although some of the health care provisions have been delayed, these additional taxes have not. A more stealth way of increasing your taxes is by altering your itemized deductions.
Beginning in 2013, a phaseout of itemized deductions reduces the value of itemized deductions by 3% of the AGI above $300,000 for couples, and $250,000 for single filers. In other words, the more you make, the fewer itemized deductions you get. Beginning Jan. 1, 2013, the medical expense floor increased from 7.5% to 10%, allowing a taxpayer to claim deductions for medical expenses not covered by health insurance only when expenses exceed 10% of AGI. There is also a phaseout of your personal exemption. For every $2,500 of AGI above $300,000 for married couples filing jointly, the $3,900 per-person personal exemption will be reduced by 2%.
The point is simply that if you add the income tax, the self employment or employee Medicare tax, the tax on net investment income, and the phase out of itemized deductions and exemptions, and then consider your state income taxes, the high income taxpayer will find he is paying near or above a 50% clip.
Although the tax legislation above would appear to have accomplished the objective, potential 2014 budget and tax legislation has been discussed that continues to contain tax provisions mostly impacting high income taxpayers. While it is not clear that any legislation will get passed this year, these proposals are a good indication of the areas that will eventually be under attack.
We previously communicated to our readers the proposals that would substantially limit the amount that could be contributed to retirement plans. President Obama’s plan is to tax the earnings on retirement plans in excess of $3 million and not allow any additional contributions.
Another important topic in recent news, the home mortgage interest deduction could be dramatically altered. The total annual tax benefit from this deduction has been estimated to be $68 billion. This deduction is under attack because it is believed the benefit has primarily been reaching the high income taxpayers, as only one-third of households are able to itemize their deductions.
To modify the home mortgage interest deduction, the U.S. government is considering several different types of reform. The most discussed modification is changing it into a tax credit. This tax credit would range from 12% to 15%, without the need for taxpayers to itemize their returns, and aims to equalize treatment across income groups. The mortgage interest eligible for the tax credit would be limited to $500,000, down from the current $1 million, and could be phased out for high income taxpayers. Most proposals eliminate the deduction or credit for second homes. President Obama has proposed his own plan, placing a cap on the amount of benefit from the deduction to 28%. While most proposals call for a restructuring of the home mortgage interest deduction, any change we will see is likely to be phased in over a period of years.
We will continue to track discussion on these issues and communicate our findings in future newsletters.
Miller/Russell Earns Accolades Around Arizona & the U.S.
August 14, 2013 – Miller/Russell & Associates
We are proud to share that Miller/Russell has been recognized in a number of capacities as one of the leading, independent investment advisory firms in Arizona and across the U.S.
We were recently named on the list of CareerBuilder’s Top Companies to Work For in Arizona. Our firm was listed in the top 50 ranking after undergoing a rigorous data collection process and employee-wide survey.
The awards program recognizes organizations that create quality jobs and work environments making Arizona a better place for the workforce.
CEO and Managing Partner, Mark Feldman, shared his thoughts on the firm’s recognition in a press release, which we felt was appropriate to share with you:
“We have worked diligently to create a collaborative, team-based culture and have found that there are substantial benefits to our clients in creating such an environment. Our team is more productive and resourceful, which ultimately results in better financial solutions for our clients. Additionally, the fact that Miller/Russell is a partner-owned firm helps us to continually attract and retain the most talented financial, wealth management and tax professionals and cultivate them into future leaders and future owners of the firm. There is truly opportunity for our employees around every corner at Miller/Russell.”
Miller/Russell was the only independent investment advisor that made the list.
We have earned additional recognition this year as well, including:
- Ranked on the list of 2013’s Top 50 Fastest Growing Firms in the U.S. by Financial Advisor Magazine
- Ranked in the Top 50 Fastest Growing, Fee-Only RIA Firms in the U.S. by Financial Planning Magazine
- Ranked as the No. 3 Independent Investment Adviser in Phoenix by assets under management by the Phoenix Business Journal
We look forward to continuing to provide our clients with the highest level of service. We will continue to further cultivate our team to ensure that your portfolio is always managed by the best team of financial experts who bring a variety of assets, strengths, and creative solutions to the table every day. In doing all of these things, we are confident that we will continue to be positioned as one of the leading investment advisory and wealth management firms in the country.
Around the Firm – August 2013
August 14, 2013 – Miller/Russell & Associates
Miller/Russell Featured in The Wall Street Journal
If you are an avid reader of The Wall Street Journal, you may have noticed that Miller/Russell’s Investment Strategy Manager, Nathan Erickson, was interviewed for a story about stocks in developed foreign countries that ran on page R10 of The Wall Street Journal on Monday, August 5. You can find the link to the full article by clicking here.
Kylia Howard Joins Miller/Russell as Administrative Assistant
Kylia Howard has joined the firm as an Administrative Assistant. Previously, she worked in management and sales roles for major retail stores. She was a top 20 national finalist for DECA, a program that prepares emerging leaders and entrepreneurs in marketing, finance, hospitality and management in high schools and colleges around the globe.
Fun Fact: Kylia has always wanted to own a pet giraffe.
Meet Miller/Russell’s Summer Interns
Now in its third year, Miller/Russell’s internship program is not only a way for us to give back to our community, but it also has become an integral part of how we recruit and develop the future generations of leaders in the firm. As one of the leading wealth management firms in the Southwest, we are able to provide an exemplary learning experience to our interns because our unique team culture allows for an in-depth and intensive mentoring structure. We actively recruit interns for semester-long programs in a variety of areas, including tax, investment and wealth management and human resources.
Here is a little bit about each of our 2013 summer interns:
As the Human Resources intern, Jade Tang processes payroll, assists in the management of employee benefits, recruits for new employees, and handles other internal tasks. She is currently a junior studying Marketing at Arizona State University’s W.P. Carey School of Business, and she plans to graduate in the spring of 2015.
Bobby Castellani is a Tax intern for the firm, assisting in providing tax planning and compliance services to clients. He is entering his senior year in Barrett, The Honors College at Arizona State University, studying Accounting in the W.P. Carey School of Business. He has also earned an International Business Certificate and is pursuing a Spanish minor. Set to graduate in May 2014, he plans to stay at ASU and earn a Masters in Taxation.
Chris Bergthold is a Private Wealth Management Intern, where he assists engagement teams in servicing high net worth individuals. He is entering his senior year at Arizona State University and is pursuing a degree in Finance from the W.P. Carey School of Business, and plans to graduate in spring 2014.
As an Investment Research intern, Bobby Kamaris uses Morningstar to build fund reports, prepares presentations for clients and IPC meetings, and assists the client engagement teams. He is a senior pursuing a double major in Accountancy and Economics with Arizona State University’s W.P. Carey School of Business, and he expects to graduate in spring 2014.
Julian Aziz is an Institutional Wealth Management intern. He works on many of the diverse tasks and responsibilities that the Institutional team handles including: scoring and creating RFPs, reporting, and creating presentations. He is a junior earning a double major in Finance and Computer Information Systems with honors at Arizona State University’s W. P. Carey School of Business.
Mitchell Lee is a Data Management intern helping to input, test and analyze data during Miller/Russell’s conversion to a new Customer Relationship Management database. Mitchell is a Biological Sciences major at Arizona State University who expects to graduate in 2014.