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3Q19 Model Portfolio Update

Updated: Dec 6, 2019

September 2019

Dear Client,

In 3Q19, we eliminated virtually all value-oriented US ETFs tied to elevated valuations in our Growth Models. Instead we continued to maintain for most of the quarter elevated cash levels. During the August, sell off we added hedges for short periods of time given the market turbulence tied to trade uncertainty which contributed to relative outperformance as cash levels remain elevated. During the quarter and particularly later part of the August we initiated positions in certain individual technology names which we deemed to offer growth & value and have secular growth aspects to them. By September these names comprised about 25% of the growth portfolios. Mid-September, we eliminated our individual US technology stocks to pull back risk ahead of earnings season. We shifted a significant amount of cash into dividend paying ETFs particularly those in Asia and too much lesser extent emerging markets which value and yields we believe offer more attractive returns. These type of stocks in our view would benefit from lower rates. Our continued belief that Asia equities offer more long-term value/growth vs the US where we believe valuations remained stretched as the US is considered the safer haven. Our significant over-weighting of Asia and under-weighting of the US reflects this AND our belief that Asia has more fiscal and monetary fire power to offset slowing growth tied to trade. As a result, we saw disproportionate rate cuts in Asia vs the US during the quarter despite superior GDP growth. Further, in most case lower valuations based on P/E multiples vs US on future EPS growth. The one exception was the addition to ALB (Albemarle) which we believed fully reflected Lithium price declines and would benefit from electric vehicle introductions in 2020.

In the quarter across our Income models we added gold/silver but as the quarter wore on, we eliminated them and shifted cash into some dividend Asian equities as well as preferred shares for yield. In addition, we eliminated intermediate bond exposure based on our belief that rates reflect slower growth and rate cuts.

Overall, we continue to favor a trade deal (although our conviction has waned & appears will come in increments) given political need to do so ahead of 2020 elections and the clear signs of corporate earnings recession which began in 1Q , continued in 2Q and is expected in 3Q. Overall global growth is slowing and, in the US, (where valuations are higher its) is no exception. Further, we believe long-term rates already reflect significant rated cuts in the US so future rate cuts will have limited effects further prompting trade resolution to spur economic growth. Our overweight of Asian/Intl dividend paying equity shares is a reflection of hedging of a trade deal, recognition of sustained relatively low rates into 2020 (although higher vs currently on trade resolution) and relative safety vs US growth shares particularly in Asia.


Leonard Brecken

Founder/Portfolio Manager

Brecken Capital Advisors, LLC

Brecken Capital Advisors, LLC (“BCA”) is a fee only Investment Adviser registered with the State of North Carolina. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at 917-701-5231 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from BCA with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. For more insights see our website and disclosures found there at BCA.

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