Dear Clients and Friends of Insight,
This time of year leads most of us to reflect on the accomplishments from the year we are leaving behind and to establish expectations for the year ahead. With this letter, I would like to share my thoughts on Insight’s 2016 successes, and some brief thoughts for 2017. Ultimately, the measure of our success is determined by how well we serve our clients as their trusted advisor. In The Insight Client Experience (enclosed) we have thoughtfully articulated the commitment we strive to deliver for clients, and I believe we succeeded.
Total Portfolio Performance
We typically establish a long-term absolute return objective, such as “5% per year after fees”, for each one of our client portfolios based on their unique goals and suitable asset allocation. Returns for clients with established portfolios for 2016 handsomely exceeded these absolute return objectives. This is very pleasing because there will certainly be years when total portfolio returns do not meet these long-term goals. Importantly and often forgotten in the investment world, these returns were obtained without generating many taxable gains due to the long-term nature of our investment process, our low turnover, and the individualized portfolio construction methods we employ. For most of our clients with trusts and taxable accounts, this is extremely important to the long-term success in preserving and growing their portfolios.
Driving this total portfolio outperformance was our stock outperformance. We achieved very strong results throughout the year, both in absolute terms and relative to comparable benchmarks such as the S&P 500 Index. We are contrarian investors, and as such, we expect our performance to differ from the overall market. We are most likely to outperform when uncertainty and anxiety is high – clearly a descriptor for 2016 – and that is what we did. Some years, a handful of stocks determine overall results, good or bad. This year, a very broad number of our selections performed exceedingly well. We also identified several very interesting new ideas for inclusion in client portfolios that we feel confident can help drive positive results in the years ahead.
For the year, our bonds performed as expected. Clients received modest income while their bonds generally sustained their value year-over-year since interest rates ended the year at about the level they began. However, the first half of the year experienced positive returns, but since then, as interest rates have increased modestly, returns have been slightly negative. This is a very good result from our conservative approach of investing in investment grade bonds of short- to intermediate-term maturities. Let’s compare this to a broader universe of bonds, which tends to be riskier. For the last six months, the 30-year U.S. Treasury index has
declined nearly 20%, the 10-year U.S. Treasury index has declined nearly 9%, and the World Government Bond index has declined nearly 10%.
We actively communicated with all clients throughout the year. During our in-person meetings we had robust discussions regarding goals and objectives, appropriate investment strategies for our uncertain times, and always tried to educate our clients with more knowledge to increase confidence in their portfolio and the broader investing world. In addition, we counseled many clients on broader financial and wealth management concerns such as trust and estate planning, financing mortgages and other loans, planning and making gifts, as well as budgeting for lifestyle objectives. And of course, Jennifer Garza ensured that all requests for reports, wires, and other specific client needs were completed in a timely and accurate manner. We pride ourselves on our commitment to a culture of superior client care!
Our good work with clients and other professional advisors has helped us earn some introductions to new client opportunities throughout the year, for which we are sincerely appreciative. I am very pleased to report that Insight’s assets under management grew by over 30% in 2016! And, we look forward to more introductions and similar growth in 2017.
2017 is sure to be another year of unexpected events and unintended consequences. We believe that the bond market will be challenged by rising interest rates. We think short-term rates are likely to increase more than intermediate- and long-term rates. Staying true to our low risk process of selecting high-quality, intermediate-term bonds of modest duration should continue to serve our clients’ goals for current income with stable values.
Further, we believe that U.S. stock investors can achieve another year of positive returns, yet results may be uneven for various stock markets and sectors. We remind you that the market’s valuation is high, particularly for some stocks and sectors, and rising interest rates can be a headwind for stock prices. This indicates a higher level of risk and there will likely be some market corrections to unnerve us. But consumer confidence is high and global growth should improve, setting the stage for a resumption in corporate earnings growth. We believe the appropriate approach for this environment is our discipline of investing in financially strong companies with demonstrated earnings, purchased at reasonable prices.
I am confident that our team will continue to provide our clients with exceptional service and solid investment results. Thank you all for contributing to Insight’s current success and for being an important part of our future. Wishing you all a healthy and happy 2017!
INSIGHT INVESTMENT COUNSEL