October 2015 Newsletter to Clients

Enjoy this month’s edition that features an update on the economy and stock markets, a highlight on the income oriented funds we own and instructions on how clients can access their statements via their secure MONEYWATCH VAULT.

Market Overview: The biggest news in the financial markets since our last Client Newsletter was that the Federal Reserve did NOT raise short term interest rates at their September meeting. They cited international growth as their concern. This leaves their December meeting as the last possible time to increase rates during 2015. The stock markets reacted negatively as investors believe the economy is in recovery and raising rates would be the next logical step. The U. S. economy is relatively healthy and the unemployment rate is declining, yet the Federal Reserve resists raising interest rates.

The third quarter of 2015 saw one of the worst stock market performances since to 2011; S&P 500 Stock Average was down 6.9%, NASDAQ Composite was down 7.4% and the Dow Jones Industrial Average was down 7.6%. Volatility was high with the DOW moving up or down more than 2% on at least seven days during the quarter. Energy was down 18.1%, materials down 17.3%, health care down 11.1%, telecommunications down 8% and financials down 7.2%. But all of this was short term oriented. We look at the long term, and do not react to such “knee jerk” behavior.

Income Funds: Low interest rates continue to impact our floating rate income funds, BlackRock and Lord Abbett. We have seen price declines in anticipation of reduced cash flow from these mutual funds. BlackRock Floating Rate Income Trust (BGT, NYSE, $12.31) is currently selling at a 13% discount to its net asset value. Translation: Were the Trust to liquidate its entire portfolio and payout the proceeds we would receive $14.18 per share.

BGT is a Morningstar Four Star-rated fund against 23 Bank Loan Funds. Since inception it has produced a Total Return of 5.7% and a Market Price Return of 4.17%. As of October 5, 2015 the Distribution Rate is 6.37% aided by leverage of close to 25%. The current return based on the projected monthly payout of $0.0583 is 5.7%, which is very competitive in today’s low interest environment. We continue to believe the share price will appreciate once short term interest rates are allowed to increase. But, in the meantime it would not be a surprise to see the shares remain under pressure as we approach tax selling season.

Top Ten Holdings of BlackRock Floating Rate Income Trust

Technology Enhancements: Over the next three months we will roll out a new ELECTRONIC STATEMENT DELIVERY SYSTEM, MONEYWATCH VAULT. As mentioned in the May 2015 Newsletter to Clients, we are continually upgrading our technology in an effort to protect your personal information. Beginning January 1, 2016 we will no longer attach documents with personal information to emails. We will create a Smart Vault for each client that will house all delivered documents. If you would like to retain these documents for future use, please download them to your personal device. Each month you will receive an email with a link to your personal VAULT containing the most recent documents. We will also provide a link to the MONEYWATCH VAULT on our website. You will need to enter your email address and password to access the VAULT. For first time users, upon entering your email address and password you will receive notification that you must first REGISTER. Follow the instructions and you will be logged into your VAULT within minutes. 

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.