• Jason M. Ray

First Quarter thoughts

It has been quite the start to 2020. Everything seemed to start off so well following a great year in 2019. Seemingly out of nowhere, the Kobe Bryant (an American icon in my opinion) tragedy occurred, and then COVID-19 began to escalate. The social, health, and economic fallout from the virus have all been extremely concerning and the media certainly is not helping.

This week, a record number of Americans filed for unemployment, manufacturing activity slowed substantially, and the US passed 2,000 total COVID related deaths. Personally, I’m struggling with the lack of sports, in person social encounters, and eating at my favorite restaurants - I know I'm not alone.

Thankfully, the Zenith community has continued to grow this quarter, as more individuals and businesses engaged in our financial planning, investment advisory, and education services. Many are realizing that it’s an excellent time to take control of your finances, save a lot of money, and allocate your savings to supporting small businesses, charitable gifts, paying down debt, and investing in public markets.

A number of Zenith clients have been focused on student debt pay-down while the government has suspended interest collection on federal student loans. A few clients have re-financed their loans at lower interest rates as well. One client in particular also wiped out all of their credit card debt during this period, with the goal to free up monthly cash flow to start investing in the stock market since prices have fallen to attractive levels.

Zenith client investment portfolios, along with the broader stock market, showed extremely volatility during the month of March. I expect that volatility to continue until we see 2 specific things happen:

  1. The daily new cases of COVID-19 in the United States decline over a week’s time

  2. Company earnings reports begin next week, and they share the impact of economic shutdowns on their revenue and profitability

During Q1, the average return of Zenith’s core equity portfolios outperformed the S&P 500 Index, along with Wealthfront’s and Betterment’s equity focused portfolios by over 5%. This outperformance is significant and can be attributed to the following factors:

  • Many Zenith clients deposited additional funds into their accounts during the month of March, enabling them to purchase securities at lower prices and improve their money weighted rate of return

  • As news about COVID-19 began to accelerate, we began to sell small pieces of portfolios to realize longer term gains and create cash to purchase securities at lower prices

  • We maintained our discipline to purchase high quality companies and thematic funds focused on sustainability, cannabis, and 5G technology

While the comparison to broader market benchmark puts negative returns in context, we don’t take negative returns lightly. The stock market is certainly cheaper, and our future expected returns are higher, but until we see the 2 aforementioned factors complete, we have taken steps to protect client portfolios to cope with further market declines. New accounts opened over the next few weeks will be introduced to the protection and phased into the market slowly to avoid steep losses upon account opening.

One indicator that I have watched closely over the years are high yield credit spreads. This indicator illustrates the perceived company bankruptcy risk in the market. The “spread” terminology refers to the interest payment yield associated with risky (high yield) bonds minus the risk-free Treasury bill interest payment yield.

My friends at Penn Capital release a plethora of very high quality credit market research, and this piece shows throughout history, when high yield credit spreads rise above 10%, 3 year forward cumulative returns for high yield bonds, small cap stocks, and large cap stocks all average over 47% (high yield bonds average over 66%!). Of course, history is not a guarantee of future performance. With that disclaimer said, now is a compelling time to invest in risky asset classes.

Stay safe during this period of social distancing. Doing your part to contain this health threat will save lives and help the economy. It’s important to position yourself to benefit coming out of this and I’m always here to talk about the best way to accomplish it.

Thank you,



Zenith portfolio performance were calculated as money-weighted - methodology as follows: [(starting balance + net contributions) - ending balance] / ending balance. Past performance is not a guarantee of future results. All historical returns, expected returns, or probability projections, are hypothetical in nature and may not reflect future realized performance.

*Betterment and Wealthfront performance is as reported by TitanVest. 

Past performance is not a guarantee or indicative of future investment performance. All investments come with risk.

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