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November, 2016

B

SENIOR FLOATING RATE BANK LOAN INVESTMENTS CONTINUE TO BE ATTRACTIVE

RECESSION RISK AND ASSET RETURNS LOOKING BACKWARD AND FORWARD

By Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.

By John Serrapere, President, Arrow Insights, LLC

eginning on September 28, 2016, the Al InFocus reviewed the 12-month forward performance of equities, bonds, commodities, smart beta, tactical portfolios, managed futures and unconventional bonds in light of recession risk (it will continue to review these for the next two weeks). Economic indicators were selected to forecast growth and were analyzed on a 12-month trailing basis to test their ability to also predict asset class performance. In summary, these issues found the following from data sourced since 1919:

Given that U.S. interest rates have been slowly increasing and more so since this year’s Presidential election, Senior Floating Rate Bank Loans (they are also called Bank Loans or Leveraged Loans) make a lot of sense in the current environment of slowly rising interest rates. Why? Because their interest rate coupons, which are variable, adjust upward or downward in conjunction with interest rates rising and falling. Coupons usually adjust every Senior Floating Rate Bank, continued on page 4

CAN COMPANIES SUSTAIN CASH PAYOUTS?

1. Recessions occur 20.0% of the time 2. Economic growth periods last 4.5 years 3. Recessions last a little more than a year

As of: December 8, 2014 COPYRIGHT 2014 361 CAPITAL

By Jun Zhu, CFA, Senior Analyst, The Leuthold Group, LLC Companies are returning cash to investors at a level never before seen. Counting dividend payouts and outstanding share repurchases, the amount of cash returned back to investors crossed the $1 trillion mark for the first time in January 2016 (based on trailing twelve-months’ total for the largest 500 companies, See Chart 1 on the top of page 12). In June 2014, the pile of cash going back to investors surpassed the previous peak reached in 2008. Chart 2, on the bottom of page 12, shows that even though share-repurchase spending just recovered back to the 2008 level, it’s the cash-dividends that have pushed total cash payouts to the current high level.

Source: 361 Capital, Weekly Research Briefing, December 8, 2014, www.361capital.com REPRINTED WITH PERMISSION FROM 361 CAPITAL

Recession Risk, continued on page 4

THE “LOW VOLATILITY” UNWIND: JUST THE BEGINNING?

By Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC In mid-summer 2016, The Leuthold Group suggested that attaining new market highs would probably require a rotation away from the long-time Low Volatility market leaders and into High Beta areas like Technology and industrial cyclicals. That rotation has accelerated in the last several weeks (Chart 1, on the top of page 10), yet the weakness of Low Vol The “Low Volatility” Unwind, continued on page 10

Cash Payouts As A Percent Of Market Cap, Sales: To put this in perspective, Chart 3 on the top of page 13, shows this cash level as a percentage of total market capitalization (gray line), and as a percentage of total sales (dark line). When measurCash Payouts, continued on page 12

THE CPA GLOBAL INVESTMENT PULSE, November 2016

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ABOUT LEGEND FINANCIAL ADVISORS, INC.® Legend Financial Advisors, Inc.® (Legend) is a Non-Commission, Fee-Only Fiduciary Securities and Exchange registered investment advisory firm with its headquarters located in Pittsburgh, Pennsylvania. Legend provides a multitude of services, including Wealth Advisory Services, which incorporate Financial Planning and Investment Management strategies to affluent and wealthy individuals as well as business entities, medical practices and non-profit organizations. Legend analyzes each client’s financial strengths and weaknesses, then recommend creative solutions for improvement. Additionally, Legend works closely with our client’s other professional advisors to achieve optimal results.

Editor Louis P. Stanasolovich, CFP® CCO, CEO and President Legend Financial Advisors, Inc.® 5700 Corporate Drive, Suite 350 Pittsburgh, PA 15237-2829 legend@legend-financial.com Newsletter Production Manager Lori L. Albert legend@legend-financial.com

WHY LEGEND IS DIFFERENT? 1. Legend is compensated exclusively by client fees, known as a Non-Commission, FeeOnly, Fiduciary advisory firm. Unlike Legend, fee-based advisors and brokerage firms have numerous conflicts of interest due to the fact that they receive commissions. 2. Members of Legend’s Financial Advisory Team have been selected by National Publications such as Worth, Medical Economics and Barron’s more than 60 times as “The Best Financial Advisors In America”. 3. Unlike most advisory firms and all brokerage houses, Legend and its advisors have chosen to be governed by the Fiduciary Standard of Law. Fiduciaries are required to work in their clients’ best interests. 4. Legend designs dynamic, creative and personalized financial planning and investment solutions for its clients. 5. Legend emphasizes low-cost investments where possible that are allocated and traded in a tax-efficient manner.

Legend Financial Advisors, Inc.® 5700 Corporate Drive, Suite 350 Pittsburgh, PA 15237-2829 EmergingWealth Investment Management, Inc. 5700 Corporate Drive, Suite 360 Pittsburgh, PA 15237-2829 Postmaster: Send all address changes to: Legend Financial Advisors, Inc.® 5700 Corporate Drive, Suite 350 Pittsburgh, PA 15237-2829 Copyright 2016 by Legend Financial Advisors, Inc.® And EmergingWealth Investment Management, Inc. reproduction, photocopying or incorporation into any information-retrieval system for external or internal use is prohibited unless permission in each case for a specific article. the subscription fee entitles the subscriber to one original copy only. Unauthorized copying is considered theft.

ABOUT EMERGINGWEALTH INVESTMENT MANAGEMENT, INC. EmergingWealth Investment Management, Inc. (EmergingWealth), is the sister firm of Legend Financial Advisors, Inc.® (Legend) and is a Non-Commission, FeeOnly Securities and Exchange Commission (SEC) registered investment advisory firm. EmergingWealth provides Investment Management services to individuals as well as business entities, medical practices and nonprofit organizations whose wealth is emerging. All investment portfolios are sub-advised by Legend. Both Legend and EmergingWealth share a common advisory team, Investment Committee and Fee Schedule.

LOUIS P. STANASOLOVICH, CFP®, EDITOR Louis P. Stanasolovich, CFP® is founder, CCO, CEO and President of Legend Financial Advisors, Inc.® (Legend) and EmergingWealth Investment Management, Inc. Lou is one of only four advisors nationwide to be selected 12 consecutive times by Worth magazine as one of “The Top 100 Wealth Advisors” in the country. Lou has also been selected 12 times by Medical Economics magazine as one of “The 150 Best Financial Advisors for Doctors in America”, twice as one of “The 100 Great Financial Planners in America” by Mutual Funds magazine, five times by Dental Practice Report as one of “The Best Financial Advisors for Dentists In America” and once by Barron’s as one of “The Top 100 Independent Financial Advisors”. Lou was selected by Financial Planning magazine as part of their inaugural Influencer Awards for the Wealth Creator award recognizing the advisor who has made the most significant contributions to best practices for portfolio management. He has been named to Investment Advisor magazine’s “IA 25” list three times, ranking the 25 most influential people in and around the financial advisory profession as well as being named by Financial Planning magazine as one of the country’s “Movers & Shakers” recognizing the top individuals who have done the most to advance the financial advisory profession. 2

THE CPA GLOBAL INVESTMENT PULSE, November 2016


THE MERCILESS MATH OF LOSS

By Tom Hannafin, CMG Capital Management Group, Inc. In some respects, investment approaches Tactical investing can be even more effec- Source: This article was excerpted from “The Merciless Math Of Loss”, by Tom can be viewed as types of aircrafts. Pastive. The best tactical investors use their Hannafin, CMG Capital Management, Inc., sive investments are like hot air balloons. flexibility to skillfully shift assets from one (Investor Education Series), www.cmgIn favorable conditions, they can indeed asset class to another—steering clear of wealth.com carry passengers to their financial goals. trouble and seizing growth opportunities. (See the chart “The Impact of Losses” COPYRIGHT 2016 CMG CAPITAL Active investments, on the other hand, below.) MANAGEMENT, INC. are like planes. When winds are fair, they, too, can carry you in the right direction. The bottom line: The investment markets REPRINTED WITH PERMISSION OF CMG They also have the flexibility to maneuare an ever-changing complex of opporCAPITAL MANAGEMENT, INC. ver through bad weather, protecting their tunity and risk. By nimbly maneuvering passengers from harm and keeping them through the markets, active managers can moving toward the destination. help to provide increased portfolio stability. That can help to lay the groundwork for enhanced returns.

THE IMPACT OF LOSSES

Why The First Rule Of Investing Is Also The Second Rule… 1000% 900% 800% 700% 600% 500%

KEY POINTS

Avoid Losses: the gain required to recover from a loss is exponential; likewise, a relatively smaller loss can erase big gains... Memorable Declines: what gain does it take to recover from these losses? Dow S&P 500 S&P 500

1929-1932 -89% 1973-1974 -48% 2000-2002 -49%

NASDAQ 2000-2002 -78% S&P 500 2007-2009 -57% Next... ??%

Note: “Dow” is the Dow Jones Industrial Average; Declines are peak to trough during the years presented

400% 300% 200% 100% 0% -100%

As of: January 23, 2015 COPYRIGHT 2015 CMG Capital Management Group, Inc.

Source: CMG Capital Management Group, Inc., January 23, 2015, www.cmgwealth.com REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.

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THE CPA GLOBAL INVESTMENT PULSE, November 2016

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Senior Floating Rate Bank, continued from page 1

30 to 90 days, so at times there may be a slight lag in the interest rate adjustments. In the immediate future, bank loan funds should perform well. These vehicles provide steady returns and safety except in recessions. Senior Floating Rate Bank Loans are relatively short and intermediate term loans (usually no more than 10 years to maturity) typically made to companies that have below-investment-grade credit ratings. The loans’ interest rates generally reset every 30 to 90 days, based on changes to an interest rate benchmark such as the London Interbank Offered Rate (LIBOR)—the rate at which banks loan each other money in the London wholesale money market. This resetting feature will usually help protect investors from the risk of rising interest rates. In addition, investors, as holders of such loans, have a higher priority claim (“seniority”) on a borrower’s cash flows or assets than holders of conventional bonds. This means that if a company defaults on its loan obligations, and declares bankruptcy, these investors are higher on the list of creditors to be paid back. Hence, these are called senior loans. Finally, such bank loans are usually backed by collateral such as real estate, manufacturing plants, equipment, etc., which can help lenders recover up to all of their loans’ value in the event of a default. Since senior floating rate bank loans are typically made to companies whose credit rating is below investment-grade and carry relatively high credit risk, investors are paid a premium over the interest rate, or “yield” they would receive if they invested in higher rated bonds. This additional yield is provided to compensate investors for assuming a higher risk of default. For a fixed-rate instrument like a conventional bond, the coupon rate does

not change during the life of the bond, so a rise in prevailing interest rates can lower the value of the bond. For floating rate loans, the coupon rate is not fixed; it floats, as mentioned earlier,. Therefore, if the benchmark interest rate rises, the yield of a floating rate loan will reset accordingly, helping to preserve the value of the investment and allowing investors to benefit from higher interest rates. Since the market price of a loan plays a muted role in floating rate instruments, they tend to be less volatile on a day-to-day basis. Additionally, since interest rates have historically tended to rise in periods of rising inflation, investing in loans that are tied to benchmark interest rates may help offset the effects of inflation. While all investments carry some degree of risk, senior floating rate bank loans involve specific risks, (explained below), which investors should understand how the loans work before investing. Credit risk is the risk that the borrower will default on its obligation to pay interest and repay principal. If a borrower defaults, a lender may lose money. If the borrower has posted collateral, loan issuers can seize and liquidate the collateral to recoup their investments. It is important to note that such collateral may be insufficient to pay the lender back completely, or could prove difficult to liquidate. Additionally, the courts may, in some cases, prevent liquidation of assets to satisfy debt obligations. Another key difference between traditional bonds and senior floating rate bank loans is that when interest rates fall, prices of already-issued fixed rate debt securities (like bonds) generally rise, and vice versa. Due to the fact that interest rates on bank loans fluctuate, interest rate risk is not really of concern to bank loan investors. If interest rates fall (or rise), yields on bank loans will also fall (or rise),

and there will typically be a more modest change or no change in the price of the loans. Senior floating rate loans’ interest rates may not correlate to prevailing interest rates between the loans’ adjustment periods. That may cause the value of the loans to decline in the short run until the coupons adjust. Though bank loans are not subject to the same interest rate risks as conventional bonds, the prices of loans may fluctuate due to “spread” risk. Spreads, which are determined by the market, are the additional interest rate premiums investors receive (versus a risk-free rate such as U.S. Treasuries) as compensation for assuming credit risk. If spreads change, the price of the loan will also change and the investor’s return will reflect current market rates. Senior floating rate bank loans, of course, are not insured by the Federal Deposit Insurance Corporation (FDIC), or any other entity. Consequently, their value will fluctuate over time, and investors could lose principal. In an environment of rising rates and inflation, owning senior floating rate bank loans may help protect investors’ purchasing power—keep up with inflation (since such loans pay more income as interest rates rise), while seeking to maintain stable prices. While interest rates may rise for these types of loans, they may increase to a point probably over 10.0% where some companies will begin defaulting on the loans. In short, interest rates that are too high on these loan types may be dangerous to investors’ capital. COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.® PULSE

Recession Risk, continued from page 1

4. Real Gross Domestic Product (RGDP) has been 3.6% since 1919

9. Stock investors anticipate a recession six months prior to a recession’s start

5. S&P 500 earnings were up in six of 17 recessions

10. The lion’s share of stock losses take place six months prior to and through six months before a recession ends

6. Stocks have declined in eight o our nation’s 17 recessions 7. Traditional commodity indexes always lose value 8. Traditional bond indexes and Treasury bonds had negative returns in only one recession (1980 – 1981) 4

11. Risk and reward rises during recessions

14. Since 1990, recessions have hurt domestic high yield bonds less than domestic stocks 15. A recession is not imminent but will probably occur late in 2017

12. Risk assets underperform during recessions

Source: This article was excerpted from “Recession Risk Factors, Yield Narratives & Markets”, by John Serrapere, President, Arrow Insights, LLC, (InPerspective, Volume 8, Issue 3, October, 2016)

13. All 12-month S&P 500 declines greater than -25.0% occurred during recessions

COPYRIGHT 2016 ARROW INSIGHTS, LLC REPRINTED WITH PERMISSION OF PULSE ARROW INSIGHTS, LLC

THE CPA GLOBAL INVESTMENT PULSE, November 2016


GMO’S RETURN FORECAST

By James J. Holtzman, CFP®, CPA, Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. In this month’s issue of The Global Investment Pulse, we have included GMO’s 7-Year Asset Class Real (after inflation) Return Forecast for numerous asset classes. GMO, the large Institutional Investment Manager, is known for its very accurate long-term market forecasts is led by legendary investor Jeremy Grantham and founder of GMO.

The chart below is calculated utilizing forecasted returns minus a forecasted long-term inflation rate of 2.2%. Obviously, the forecasted returns are not very exciting. COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®

7-YEAR ASSET CLASS REAL RETURN FORECASTS* STOCKS

10.0%

BONDS 6.5% Long-Term Historical U.S. Equity Return

8.0%

Annual Real Return Over 7 Years

OTHER

6.0% 4.4% 3.7%

4.0%

2.0% 0.1%

0.6%

0.6%

0.3%

0.0% -0.6%

-0.8%

-2.0%

-1.7% -2.7%

-3.4%

-4.0%

-6.0%

-0.2%

U.S. Large

U.S. Small

U.S. High Quality

Int’l Large

Int’l Small

Emerging

U.S. Bonds

Int’l Emerging Bonds Debt Hedged

U.S. Inflation Linked Bonds

U.S. Cash

Timber**

* The chart represents real return (after inflation) forecasts for several asset classes. These forecasts are forward-looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward-looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward-looking statements, U.S. inflation is assumed to mean revert to long-term inflation of 2.2% over 15 years. ** The Timber forecast has been revised from 4.8% to 4.4% real return. Changes in the forecast represent both an update to methodology (for example, an adjustment to what types of assets are considered to be representative of South/Central America timber) and GMORR team’s view on the global timberland market.

As of: October 31, 2016 COPYRIGHT 2016 GMO, LLC

Source: GMO, LLC, October 31, 2016, www.gmo.com REPRINTED WITH PERMISSION FROM GMO, LLC

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HOW LONG IS IT UNTIL THE 2020 ELECTION?

By Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. Good luck to all the candidates running The next Presidential Election Day is million Americans that could have voted and congratulations to all the voters for November 3, 2020. That is only 1,434 choose not to do so. The highest voter making it through this 2016 election cycle. days away or alternatively another way to participation (in percentage terms) in the say it, it is only 3 years 11 months and 4 last 100 years was the 62.8% that voted As of Friday, November 25, 2016, Hillary days away. in the 1960 election. Clinton (D) won the 2016 popular vote by more than 2,000,000 votes and count126.1 million Americans voted in this COPYRIGHT 2016 LEGEND FINANCIAL ing. Donald Trump (R), however, won the year’s November 8 presidential election, ADVISORS, INC.® Electoral College vote of 306 to 232. This 3 million less than the number of voters is the vote that actually counts for electing in the 2012 election. The 126.1 million REPRINTED WITH PERMISSION OF LEGa president. However, a few states have voters represent 56.8% of Americans that END FINANCIAL ADVISORS, INC.® not been finalized. were eligible to vote, indicating that 96 PULSE

THE CPA GLOBAL INVESTMENT PULSE, November 2016

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MONTHLY RISK AVERSION INDEX (RAI) RISK INDEX DECREASED EVER SO SLIGHTLY STILL IN “EXTREME LOWER RISK” RANGE

Note: The Risk Aversion Index combines ten market-based measures including various credit and swap spreads, implied volatility, currency movements, commodity prices and relative returns among various high- and low-risk assets.

4

4

3

3

2

2

1

1

0

0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016,

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

http://leuth.us/bond-market

REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

SMALL CAP TO LARGE CAP HISTORICAL PRICE TO EARNINGS (P/E) RATIO Small Caps Valuations Cheaper Than Large Stocks By 4.0%

120

120

110

110

100

100

90

90

80

80

70

70

60

60 1983

1986

As of: November 7, 2016

6

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/market-internals REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

THE CPA GLOBAL INVESTMENT PULSE, November 2016


“Do You Want A Second Opinion?” To see if your investment portfolio is built to navigate the pitfalls and opportunities ahead, call us today for a “Free Second Opinion” at (412) 635-9210.

www.legend-financial.com THE CPA GLOBAL INVESTMENT PULSE, November 2016

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SECULAR BEAR MARKET WATCH April 1, 2000 to October 31, 2016 (16 years and 7 months) Annual Compound Return

Total Return

Consumer Price Index (Inflation)*

2.10%

41.20%

90-Day Treasury Bills Index-Total Return

1.60%

30.04%

Barclays Aggregate Bond Index-Total Return

5.34%

137.21%

High Yield Corporate Bond Index – Total Return

9.20%

331.06%

S&P Leveraged Loan Index – Total Return

4.94%

122.64%

HFRX Global Hedge Fund Index

2.27%

45.09%

S&P 500 Index (U.S. Stock Market)

4.12%

95.50%

MSCI EAFE Index (Developed Foreign Equities)

2.78%

57.55%

MSCI Emerging Market Index (Equities)

6.39%

179.77%

Newedge CTA Index (Managed Futures)

4.91%

121.54%

Dow Jones–UBS Commodity Index-Total Return (USD)**

-0.89%

-13.83%

Dow Jones U.S. Real Estate Index-Total Return (USD)**

10.74%

443.27%

9.59%

357.29%

Gold Bullion As of: October 31, 2016

SECULAR BEAR MARKET WATCH (CONTINUED)

Compound and Total Returns include reinvested dividends. MSCI Indexes do not include dividends prior to 2002. Newedge Index is equally-weighted. ** USD = U.S. Dollar April 1, 2000 to October 31, 2016 Source: Bloomberg Investment Service

2016 LEGEND FINANCIAL ADVISORS, INC. (16 yearsCOPYRIGHT and 7 months) REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ® ®

Note: During Secular Bear markets U.S. Stocks have historically returned a little more than inflation or a little less than inflation—plus or minus 1.50%—and generally last between 15 to 25 years. The last Secular Bear market (1966 to 1982) lasted 17 years and underperformed inflation by approximately one-half of one percent per year. The other Secular Bear markets since 1900 were 1901 to 1920 and 1929 to 1949. In both cases, the U.S. Stock market outperformed inflation by approximately 1.50% per year. All of the aforementioned performance numbers are pre-tax. The performance of the U.S. Stock market so far in the current period (April 1, 2000 to the present) certainly appears to indicate that we are in a Secular Bear market. Long-term returns (over the next 10 years) for the S&P 500 will probably be slightly worse than the last 16 years and 7 months. Current 10 year normalized P/Es (long-term valuations) indicate approximate annual compound returns of slightly less than 3.00% over the next 10 years. Of course during the next 10 years, returns during various periods will be significantly higher and lower than the expected return. For example, the more the stock market rises in the near term, the less returns after that period will be and vice versa. 8

THE CPA GLOBAL INVESTMENT PULSE, November 2016


2016 PERFORMANCE YEAR-TO-DATE January 1, 2016 to October 31, 2016 (10 months) Year-to-Date Total Return Consumer Price Index (Inflation)

2.20%

90-Day Treasury Bills Index-Total Return

0.24%

Bloomberg Intermediate Term Corporate Bond Index

8.14%

Barclays Aggregate Bond Index-Total Return

4.99%

High Yield Corporate Bond Index – Total Return

15.56%

S&P Leveraged Loan Index – Total Return

8.61%

HFRX Global Hedge Fund Index

0.75%

S&P 500 Index (U.S. Stock Market)

5.87%

MSCI EAFE Index (Developed Foreign Equities)

0.16%

MSCI Emerging Market Index (Equities)

16.58%

Newedge CTA Index (Managed Futures)

-1.68%

Dow Jones–UBS Commodity Index-Total Return (USD)**

8.07%

Dow Jones U.S. Real Estate Index-Total Return (USD)**

5.54%

Gold Bullion

20.08%

As of: October 31, 2016 Compound and Total Returns include reinvested dividends. Newedge Index is equally-weighted. ** USD = U.S. Dollar Source: Bloomberg Investment Service

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC. ® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ® THE CPA GLOBAL INVESTMENT PULSE, November 2016

9


The “Low Volatility” Unwind, continued from page 1

groups has been sufficient to hold the S&P 500 below its August 15th bull market high of 2190.15. However, 2190.15 may be lower than the market high can even in the near future. (See Chart 2 on the bottom right.) The expectation that higher beta leadership should take hold need not be based on a bullish market call, however. Value investors, with no market forecasts whatsoever, should also be making this bet. Chart 3, on the bottom of page 11, shows the Leuthold 3000 High Beta Index commands a median trailing P/E that (at a current 17.5x) is below much of its history (24th percentile). The obsession with stock market “offense” that existed at the peak of the Tech bubble—and with the High Beta P/E at 110x—has been completely unwound. Market analyst Bob Farrell observed, “Excesses in one direction will lead to an opposite excess in the other direction.” That’s certainly happened here, with stock market defense now the trait for which one evidently can’t pay too much. Despite the recent setback, the median stock in the Leuthold 3000 Low Volatility Index trades at almost 22x EPS is above 96.0% of all readings since 1986.

11500 11000 10500 10000 9500 9000 8500

5900 5800

8000 7500

5700 5600

7000

5500 5400 5300

6500 6000 5500 Nov

Dec

2016

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Mar

Apr

May

10

Jun

Jul

Aug

Sep

Oct

5100 5000 4900 Nov

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

0.8

Chart 2

0.7 0.6

Low Vol is yet another winning play that’s increasingly become a bet on bonds.

Source: This article was excerpted from “The “Low Vol” Unwind: Just The Beginning?”, by Doug Ramsey, CFA, CMT, Chief Investment Officer, The Leuthold Group, LLC, (Perception Express, November 7, 2016), http:// leuth.us/stock-market

REPRINTED WITH PERMISSION OF THE LEUTHOLD GROUP, LLC

5200

S&P 500 High Beta Index (Left Scale)

Our conviction that this valuation gap will close is extremely high, but our confidence in “when” and “how” is not. The gap, however, is so big one’s timing need not be perfect.

COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

7000 6900 6800 6700 6600 6500 6400 6300 6200 6100 6000

Chart 1

S&P 500 Low Volatility Index (Right Scale)

52-Week Rolling Correlation, S&P 500 Low Volatility Relative Total Return Versus 10-Year Treasury Bond Total Returns 2000 As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3

2010 Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

The “Low Volatility” Unwind, continued on page 11

THE CPA GLOBAL INVESTMENT PULSE, November 2016


WHY BUY GOLD?

By Diane M. Pearson, CFP®, PPCTM, CDFATM, Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.

WHY SELL GOLD?

By Diane M. Pearson, CFP®, PPCTM, CDFATM, Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.

HSBC Bank analysts predicted that the Trump win will be extremely bullish for gold. According to analyst James Steel, Trump’s “protectionist” policies could have a negative impact on global trade and increase future federal trade and budget deficits, which could push up the price of gold. HSBC Bank analysts sees gold rising to as high as $1,500.00 an ounce by year-end 2016.

In events reminiscent of 1997 and 2006, we are seeing an unwinding of the carry trade, which is putting pressure on gold. Investors have been buying Japanese debt at 0.0% interest rates, to buy gold and emerging markets. But now Japan is calling in its debts, causing investors to sell their gold and emerging market investments.

Source: This article was excerpted from “What Trump’s Stunning Upset Means For Markets”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, November 11, 2016), www.usfunds.com

Source: This article was excerpted from “What Trump’s Stunning Upset Means For Markets”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, November 11, 2016), www.usfunds.com

COPYRIGHT 2016 U.S. GLOBAL INVESTORS

COPYRIGHT 2016 U.S. GLOBAL INVESTORS

REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS

REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS

The “Low Volatility” Unwind, continued from page 10

120

Chart 3

Leuthold 3000 High Beta Index – Median Price-To-Earnings (P/E On 12-Months Earnings Per Share (EPS) (Left Scale)

110 100 90

25 24 23 22

Leuthold 3000 Low Volatility Index – Median Price-ToEarnings (P/E) On 12-Months Earnings Per Share (EPS) (Right Scale)

80 70 60 50 40 30

21 20 19 18 17 16 15 14 13 12

20

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As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

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Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

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11


Cash Payouts, continued from page 1

CHART 1 LTM DIVIDEND PAYOUT PLUS CASH USED FOR SHARE REPURCHASE FOR LARGEST 500 COMPANIES (MIL USD) 1,200,000

1,000,000

800,000

600,000

400,000

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

200,000

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 2 LTM DIVIDEND PAYOUT VERSUS CASH USED FOR SHARE REPURCHASE FOR LARGEST 500 COMPANIES (MIL USD) 700,000

Dark Line: Cash Used For Share Repurchase

600,000

Gray Line: Cash Used For Dividend Payout

500,000

400,000

300,000

200,000

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

12

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

100,000

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 13

THE CPA GLOBAL INVESTMENT PULSE, November 2016


Cash Payouts, continued from page 12

10.0%

Gray Line: Cash Returned As Percent Of Market Cap

8.0%

6.0%

4.0%

2.0%

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

CHART 4 CASH RETURNED PERCENT OF SALES (Median Of Largest 500 Companies)

16.00

12.00

Jan-05

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

14.00

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

0.0%

Cash Used For Share Repurchase And Dividend Payout

10.00 8.00 6.00 4.00 2.00

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

0.00 Jan-94

Charts 5-8 on pages 14 and 15, show the historical median cash returned as a percent of sales for the top four quintiles. While the traditionally largest cash returners (top quintile) haven’t run

Dark Line: Cash Returned As Percent Of Sales

Jan-93

Looking at the company level, the ratio has not yet reached its record high level. Chart 4 to the bottom right, shows that the median ratio of the largest 500 companies now stands at 13.8%, lower than the peak of 14.9% reached in early 2008. However, after further dissection of the data, we see the median ratios of the third and fourth quintiles (Charts 5-8) have pushed up significantly, while the median ratio of the top quintile has stayed the same.

12.0%

Jan-92

Another more significant indicator, we think, is the cash amount as a percentage of total sales. This ratio more accurately reflects the affordability of the dividend payouts and share repurchases. As of now (twomonth data lag), cash returned as a percentage of sales has reached 9.8%, passing the peak reached in early 2008 (Chart 3). This historically high percentage makes us uncomfortable.

CHART 3 CASH RETURNED PERCENT OF SALES, VERSUS PERCENT OF MARKET CAP

Jan-92

ing based on market capitalization, cash returned is at 5.4%, significantly lower than the peak in 2009. However, this is somewhat misleading as the market bottomed in early 2009, reducing the denominator of this calculation. The current level now matches that of 2007—before the market tumult.

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 14

THE CPA GLOBAL INVESTMENT PULSE, November 2016

13


Cash Payouts, continued from page 13

CHART 5 CASH RETURNED PERCENT OF SALES (Median Of Largest 500 Companies Top Quintile) 40.00 35.00

Cash Used For Share Repurchase And Dividend Payout

30.00 25.00 20.00 15.00 10.00 5.00

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

0.00

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 6 CASH RETURNED PERCENT OF SALES (Median Of Largest 500 Companies Second Quintile) 18.00 16.00

Cash Used For Share Repurchase And Dividend Payout

14.00 12.00 10.00 8.00 6.00 4.00 2.00

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

14

THE CPA GLOBAL INVESTMENT PULSE, November 2016

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

0.00

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 15


Cash Payouts, continued from page 14

CHART 7 CASH RETURNED PERCENT OF SALES (Median Of Largest 500 Companies Third Quintile) 12.00

10.00

Cash Used For Share Repurchase And Dividend Payout

8.00

6.00

4.00

2.00

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

0.00

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 8 CASH RETURNED PERCENT OF SALES (Median Of Largest 500 Companies Fourth Quintile) 7.00

6.00

Cash Used For Share Repurchase And Dividend Payout

5.00

4.00

3.00

2.00

1.00

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

0.00

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 16

THE CPA GLOBAL INVESTMENT PULSE, November 2016

15


Cash Payouts, continued from page 15

the ratio back up to its peak level, companies in the second through fourth quintiles have all been returning much more cash than in 2008. (The fifth quintile is not charted because cash returned as a percentage of sales is quite low.) If the tide turns, management of these companies may have to tighten their wallet strings swiftly and cut dividends/repurchase programs deeper than the top quintile companies. Cash Payout Levels By Sector: Sector-level analysis shows that out of the ten broad sectors, only Utilities has reached the level of 2008 (Table 1, below). Three other sectors including Consumer Staples, Industrials, and Financials are only single-digits below their peaks. Eight of the ten broad sectors exceed their historical averages by relatively large margins (Telecom and Energy are the exceptions). Sources Of Cash Diminishing: Another warning sign is that the ultimate sources for sustainable payout (i.e., sales and cash flow from operations) are no longer growing in value. The aggregate sales of the largest 500 companies peaked in December 2014, and has since trended down. The most recent number shows a 2.5% decline from the peak. Operating cash flow declined even more, it’s 12.8% off its late-2014 peak (Chart 9 on the top of page 17).

On the other hand, companies are racking up long-term debt. The highest debt load in the 24-year history was in late 2007, totaling $6.2 trillion for the 500 companies combined. Deleveraging lasted a few years before companies started to take out loans again. Total long-term debt again crossed the $6 trillion mark in June 2016—the first time since 2007; at $6.02 trillion, it is now only 2.7% off the all-time high. If companies are tapping cheap loans for dividend payouts and share repurchases, we expect this activity will cease as interest rates rise.

seeking a current income stream. See Table 2 on page 20.

Uneasiness about dividend-paying stocks and companies repurchasing shares has already emerged. Dividend-paying stocks recently began to underperform the broad market (Chart 11, on the top of page 18), and dividend growers (companies raising dividend payments) are now trailing the non-growers (Chart 12 on the bottom of page 18). The same observations are made for companies repurchasing shares (Charts 13 &14, top and bottom of page 19, respectively).

3. Sales/operating cash flow growth since 2007 is among the lowest.

High-Risk Companies:

COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Table 2 identifies companies—that might not be able to afford it—returning large amounts of cash to investors. Companies have to show weakness in all four criteria to be included. Of the firms with lofty cash payouts, these companies, in our opinion, have the least liquidity. Any changes in the trend are likely to disappoint investors

Screen Criteria: 1. Total cash returned (including cash dividends and cash used for share repurchases) in the trailing twelve months is higher than its 2007 level. 2. Total cash returned as a percent of sales is higher than its 2007 percentage, and is in the top two quintiles of companies.

4. LT debt-level growth since 2007 is among the highest. Source: This article was excerpted from “Can Companies Sustain Cash Payouts?”, by Jun Zhu, CFA, Senior Analyst, The Leuthold Group, LLC, (Perception Express, November 7, 2016), http://leuth.us/ stock-market

REPRINTED WITH PERMISSION OF THE LEUTHOLD GROUP, LLC

TABLE 1 CASH RETURNED PERCENT OF SALES (SECTOR MEDIAN)

Historical Average Since 1981

Peak*

Current Median

% Above Average

% Off Peak

Utilities

4.6

7.3

7.3

56.0%

0.0%

Consumer Staples

5.9

12.2

11.7

98.0%

-4.0%

Industrials

4.0

9.6

9.1

127.0%

-5.0%

Financials

6.9

17.4

16.2

134.0%

-7.0%

Consumer Discretionary

3.8

8.8

7.8

102.0%

-12.0%

Energy

3.0

5.5

4.8

61.0%

-13.0%

IT

3.3

19.6

16.6

406.0%

-15.0%

Health Care

6.1

11.0

8.9

46.0%

-19.0%

Materials

3.4

8.9

7.1

106.0%

-21.0%

Telecom

7.3

18.2

7.2

-5.0%

-61.0%

* All Peaks Reached In Early 2008

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

16

THE CPA GLOBAL INVESTMENT PULSE, November 2016

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 17


Cash Payouts, continued from page 16

CHART 9 SALES/OPERATING CASH FLOW IS TRENDING DOWN 12,000,000

10,000,000

2,100,000

Dark Line: Aggregate Sales Of Largest 500 Companies (mil USD, left axis)

1,900,000 1,700,000

Grey Line: Operating Cash Flow (mil USD) 8,000,000

1,500,000 1,300,000

6,000,000

1,100,000 4,000,000

900,000 700,000

2,000,000 500,000

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

300,000

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 10 INCREASING DEBT LOAD 7,000,000

6,000,000

5,000,000

Aggregate Long Term Debt For The Largest 500 Companies

4,000,000

3,000,000

2,000,000

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

1,000,000

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 18

THE CPA GLOBAL INVESTMENT PULSE, November 2016

17


Cash Payouts, continued from page 17

CHART 11 RELATIVE PERFORMANCE OF DIVIDEND PAYING STOCKS 8

130 Black Line: Relative Strength: WisdomTree Dividend Index Versus S&P 500

7

125

6

120

5

115 110

4

105

3

100

2

1

95

Grey Line: 10-Year U.S. Treasury Rate

0 Jan-07

90 Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 12 DIVIDEND PAYING COMPANIES: DIVIDEND GROWER VERSUS NON-GROWER 150

Relative Strength Line: Rising Line = Companies with Growing Dividend Payout Outperforming

145

140

135

130

125

120 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 19

18

THE CPA GLOBAL INVESTMENT PULSE, November 2016


Cash Payouts, continued from page 18

CHART 13 COMPANIES BUYING BACK SHARES VERSUS COMPANIES WITH NO SHARE REPURCHASE 125

120

Relative Strength Line: Raising Line= Companies Buying Back Their Own Shares Outperforming

115

110

105

100

95

90 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

CHART 14 COMPANIES RE-PURCHASE SHARES: REPURCHASE GROWER VERSUS NON-GROWER 130

125

120

115 Relative Strength Line: Rising Line = Companies With Growing Share Re-Purchases Are Outperforming 110

105 Jan-07

Jan-08

Jan-09

Jan-10

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Cash Payouts, continued on page 20

THE CPA GLOBAL INVESTMENT PULSE, November 2016

19


Cash Payouts, continued from page 19

TABLE 2 COMPANIES WITH THE LOWEST AFFORDABILITY OF CASH PAYOUT

SYMBOL

COMPANY

SECTOR

SUBIND

MKT (MIL USD)

CASH PAID AS % OF SALES

HRB

H&R Block, Inc.

Consumer Discretionary

Specialized Consumer Services

4,897

74.07

WEN

Wendy’s Company

Consumer Discretionary

Restaurants

2,795

71.42

BID

Sotheby’s Class A

Consumer Discretionary

Specialized Consumer Services

1,942

48.04

BF.B

Brown-Forman Corporation Class B

Consumer Staples

Beverages

10,181

44.51

YUN

Yum! Brands, Inc.

Consumer Discretionary

Restaurants

22,274

40.63

IVZ

Invesco Ltd.

Financials

Asset Management & Custody Banks

11,455

22.17

POT

Potash Corporation of Saskatchewan, Inc.

Materials

Fertilizers & Agricultural Chemicals

13,443

21.72

LECO

Lincoln Electric Holdings, Inc.

Industrials

Industrial Machinery

4,275

20.95

NCR

NCR Corporation

Information Technology

Technology Hardware Storage & Peripheral

4,320

19.55

PRGS

Progress Software Corporation

Information Technology

Systems Software

1,291

19.24

ITW

Illinois Tool Works, Inc.

Industrials

Industrial Machinery

39,355

16.88

UTX

United Technologies Corporation

Industrials

Aerospace & Defense

83,996

15.03

WDFC

WD-40 Company

Consumer Staples

Household Products

1,471

14.66

BNS

Bank of Nova Scotia

Financials

Developed Diversified Banks

64,808

13.89

SLB

Schlumberger NV

Energy

Oil & Gas Equipment & Services

109,496

12.81

LII

Lennox International, Inc.

Industrials

Building Products

6,213

11.22

LMT

Lockhead Martin Corporation

Industrials

Aerospace & Defense

71,774

8.64

As of: November 7, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Source: The Leuthold Group, LLC, Perception Express, November 7, 2016, http://leuth.us/stock-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC PULSE

20

THE CPA GLOBAL INVESTMENT PULSE, November 2016


LEGEND FINANCIAL ADVISORS, INC.® & EMERGINGWEALTH INVESTMENT MANAGEMENT, INC.’S INVESTMENT MANAGEMENT SERVICES Legend Financial Advisors, Inc.® (Legend) and EmergingWealth Investment Management, Inc. (EmergingWealth) offer Personalized Investment Management Services to individuals and institutions. Investment portfolios are developed to match the client’s return and risk requirements, which are determined by the clients’ completion of a Risk Comfort Zone Questionnaire, with the guidance of a Legend Wealth Advisor or EmergingWealth Advisor, respectively. Each type of investment portfolio is managed to achieve the short, intermediate and long-term investment objectives of the client, as may be applicable.

INVESTMENT PROCESS Investment Portfolios: Unlike most financial advisory firms that offer one style of investment or portfolio type, we offer a wide array of investment portfolios that usually fit with the large majority of client needs. If necessary, we will create customized solutions as well. For the types of investment portfolios, please see our Investment Portfolios, Potential Return and Risk Spectrum Chart on the next page. For a detailed description of our portfolios, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at legend@legend-financial.com. Investment Research: Our Investment Committee performs extensive research to identify opportunities, mitigate risks and structure investment portfolios. Emphasis is placed on developing portfolios that maximize the potential return relative to the amount of risk taken. In-depth due diligence including face-to-face interviews in many instances with portfolio managers for open-end mutual funds is performed on each investment we select for a portfolio. Factors (both from a qualitative and quantitative standpoint) that we conduct a thorough analysis of each investment include, but is not limited to, liquidity (including the primary investment and/or the underlying investments, if utilizing pass through vehicles such as openend mutual funds or exchange-traded products), income taxation, all related costs, return potential, drawdown potential (historical declines from peak-to-trough), volatility and management issues (Anything having to do with the management team of a stock, open-end mutual fund or an exchange-traded product.). All portfolios for EmergingWealth are subadvised by Legend. Client Education: Education is very important to us. We are dedicated to educating each client about the different investment portfolio types and how they relate to market volatility, time horizons, and investment returns. It is our goal to ensure that the client understands and agrees with our investment philosophy. Furthermore, we assist each client in selecting a risk tolerance level with which they are comfortable. Ultimately, an investment portfolio is designed to meet the client’s objectives.

PERFORMANCE REPORTING Many investment firms only offer monthly brokerage statements, which provide minimal information; typically only account and investment balances. We, on the other hand, provide detailed quarterly reports that outline performance, income and management fees (among other items) in a simple, easy-to-read report. In addition, each performance report is sent with an extensive index page that illustrates the investment environment during the reporting period.

FEES To find out more about the fees for either Legend or EmergingWealth’s Investment Management services, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at legend@legend-financial.com. THE CPA GLOBAL INVESTMENT PULSE, November 2016

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THE CPA GLOBAL INVESTMENT PULSE, November 2016 © 2014 Legend Financial Advisors, Inc. ® All Rights Reserved


The CPA Global Investment Pulse, November 2016 Issue