Content provided by Matt Santini, CLS Portfolio Manager

The Waters and Gilmour masterpiece has a very well-known lyric about a fleeting glimpse. What many people don’t know is that song, Comfortably Numb, had the working title during production of “The Doctor.”  Sometimes you need a doctor to distinguish for you the difference between a cold and pneumonia. Is the market’s latest sell off just a fleeting glimpse soon to pass, or is it the makings of a much needed correction?  Regardless, certain assets are acting according to plan, and, unless you are well diversified….. you would never know. Maybe 2014 is the year of the asset allocation model.

So, what is winning?  Everyone’s least favorite asset class: Bonds. What is struggling?  Japan. Imagine that, 2013’s best and worst performing asset classes have switched places. The nerve!

When I look at my various portfolios, factor ETF’s are proving their worth thus far again. Equal weight is outperforming cap weight and alternative ETFs are saying “no” to volatility. Much has been said about international volatility and the emerging contagion, but some of our friend’s across the pond are continuing to shine. The small-cap European ETF, DFE, is down a paltry 1.90 percent YTD.

Last year, on a risk adjusted basis, the healthcare sector was my best position. If I were to annualize 2014 thus far, that would be the case again. Pharmaceuticals and Medical Devices continue to deliver alpha and that trend should continue as more and more people have access to healthcare.

We would be naïve to think market’s only go up. In fact, many diversified portfolio managers (myself included), would welcome a natural correction. Who doesn’t like their favorite items to go on sale?

Bonds are a type of debt instrument issued by a government or corporate entity which an investor loans money to the entity for a defined period of time at a fixed interest rate.  Risks associated with bonds include, but are not limited to, prepayment risks, interest rate risks, and credit/default risks.

An ETF is a type of investment company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index.

International investing is an investment strategy where investors chose global investment instruments.  International investing can be accomplished utilizing a variety of investment vehicles including, but not limited to, ETFs, American Depository Receipts, or a direct investment in a foreign stock exchange.  All of the risks of domestic investing are present.  Added risks might include unstable international political and economic conditions, currency fluctuations, foreign controls on investment and currency exchange, withholding taxes, a lack of adequate company information, less liquid and more volatile markets, and a lack of governmental regulation which subject foreign securities to risk.

The healthcare sector is composed of stocks representing medical services and manufacturing.  Included in this sector are biotech firms, HMOs, and hospital management service providers.

Alpha, also called the risk-adjusted return, is the difference between an asset’s expected return and its actual return.

0267-CLS-2/5/2014