Churchill Management Group Monthly Market Update February 9, 2016 TACTICAL STRATEGIES PREMIER WEALTH TACTICAL & PREMIER WEALTH TACTICAL CORE The market began the year with its worst start ever before recovering and offsetting some of the early losses. The DJIA, S&P 500, NASDAQ, and Russell ended the month down -5.50%, -5.07%, -7.86%, and -8.85% respectively. The collapsing price of crude oil and the weakness in China both played a big part. In addition, the Fed hiking rates for the first time in nearly a decade only added to the market s angst. Markets have been extremely volatile, with all but a few days so far this year experiencing a 100 point move in one direction or the other. Churchill s Premier Wealth portfolios entered the year with a very large cash allocation and the action so far this year has validated our view that the risks in the market remain elevated. Based on what we have seen from earnings releases thus far, the fundamental case for the market continues to deteriorate as companies have been releasing generally poor earnings along with cautious forward guidance. The economy is muddling along and it appears profit margins have rolled over. The Fed s decision to raise rates did not help the markets and is now looked at as a questionable move. The bottom line is that we are in a difficult macroeconomic environment and help from the Fed is unlikely without more turmoil. Technically, the market was already broken as the major trendlines and moving averages were violated in August. The failed rally attempt in the fall can be seen as confirmation of the bearish case that the last year has been a topping process. The Large Cap stocks are currently testing the August 2015 lows while the Small and Mid Cap stocks broke down and fell another leg lower. The market has deteriorated piece by piece, led by the Small Caps, then the leadership in the healthcare space, and now
the Large Cap tech stocks. Another leg lower for the Large Cap indices would not be a surprise. We have seen a pause on the downside but have yet to see it make a meaningful countertrend rally. If we move lower without a rally, it speaks volumes about the weakness of the market. We will continue to watch the market closely for signs that a bottom/low risk buy zone is upon us and will adjust our exposure accordingly when that happens. For now, we remain in capital preservation mode. TACTICAL OPPORTUNITY The Tactical Opportunity strategy remains in a more defensive mode with a substantial amount of cash. As has been the case for several weeks now, the model has seen a few stocks hit their sell signal without any buy signals being generated to replace it, hence the cash build up. To illustrate, the portfolio is holding just 20 stocks when its target is 35. Continued weeding is expected. FULLY INVESTED ETF SECTOR ROTATION The sell off to start 2016 has been rather broad. For the year, only the Utility sector is up as the group is being bought for its yield. The more defensive minded Consumer Staples is holding up better than most. Beyond that most every sector has moved in kind with the market with the Financials fairing the worst, even worse than Energy, so far this year. Given the volatility, the ETF Sector Rotation model has moved to a neutral position. Right now the only overweight sectors are Consumer Staples and Healthcare. Broad markets continue to lag as do the internationals so the model will hold tight in the neutral position. EQUITY GROWTH AND VALUE With the average S&P stock down over 23% and the market breadth in decline it has,
needless to say, been a bit tougher to find stocks able to maintain any upward momentum. Past leaders such as Facebook, Amazon, and Starbucks have shed some of their recent gains as they have pulled back into lower bases. With the year to date market volatility, there have been some stocks that have hit their stop loss targets and have been rotated out of in the portfolios. We expect a higher than average amount of turnover until the market can find an identifiable and sustainable trend. EQUITY DIVIDEND INCOME Despite the fact that the last move by the Fed was to raise rates, the yield on the 10 year treasury has fallen from an already low 2.3% to 1.75% so far this year. The drop in the 10 year has helped Dividend paying stocks which have held up much better than the market thus far during the volatility. On the individual equity side, weightings are heavier in Consumer Staples and Utilities. The strategy was yielding 4.10% as of 12/31/15, please view our handout below for more details and disclosure. For a full description of each strategy, please click here. Best regards, CHURCHILL MANAGEMENT GROUP 877-937-7110 info@churchillmanagement.com ** This report is meant to inform the reader of our current market opinion, which we, as professional money managers, use in our decision-making. It should be noted that stock market and bond market data are subject to varying interpretations and any one interpretation will not necessarily guarantee investment success. The information obtained from the sources specified herein and used as basis for our current market opinion is believed reliable, but we do not guarantee the accuracy of such information.
V{âÜv{ ÄÄ `tçtzxåxçà ZÜÉâÑ EQUITY DIVIDEND INCOME Fred Fern, CEO Ranked #2 - Barron s 2015 Top 100 Advisors * Investment Approach The Equity Dividend Income strategy is designed for clients seeking to combine income from equities with their potential for growth. The strategy aims to form a portfolio of stocks that meet the criteria of combining a higher than average dividend as compared to the S&P 500 with reasonable earnings growth prospects. It looks for potential dividend growth and equities with a positive relative strength as compared to other dividend paying stocks. It may employ a stop loss mechanism in order to rotate out of unfavorable sectors. The Strategy Seeks High Quality Stocks with... Dividend Yield Dividend Growth Earnings Stability The strategy seeks to put together a well diversified group of high quality stocks paying a dividend higher than the average found in the S&P 500. The average dividend yield of the composite as of 12/31/15 is 4.10%.* The strategy looks to include high quality companies that have a high probability of continually growing dividends that are paid to shareholders. Earnings stability and future earnings prospects are reviewed for dividend payment stability and potential for long- term capital appreciation. Dual Consideration In addition to strong fundamentals, the portfolio also wants to hold those dividend paying stocks that are more technically favorable. Sector Diversification The strategy looks to diversify among several investment sectors and may utilize a stop loss philosophy to help rotate away from underperforming sectors. CONTACT INFO Phone: 877-937-7110 5900 Wilshire Blvd., Suite 400, Los Angeles, CA 90036 *See disclosure on reverse. As with all investment strategies there is risk of loss. Please see Churchill Management s Form ADV2 to understand certain risks involved with each individual investment strategy.
CHURCHILL MANAGEMENT GROUP EQUITY DIVIDEND INCOME COMPOSITE (C-65) Annual Disclosure Presentation Year Assets (millions) Total Firm Assets (millions) Dow Jones Select Dividend Index Dow Jones Select Dividend Index 3 Yr Annualized Standard Deviation Accounts in Asset-Weighted Annual Return Gross Net** Equity Dividend Income 3 Yr Annualized Standard Deviation Non-Fee Paying Accounts (% of composite) Dispersion 2015 279.6 3735-1.64% 10.48% 1475 5.11% 4.11% 9.49% 0.24% 1.17% 2014 192.0 3393 15.36% *** 973 17.35% 16.30% *** 0.10% 0.76% 2013 111.3 3191 29.06% *** 614 29.62% 28.38% *** 0.17% 0.70% *2012 2.1 2625-0.04% *** 12 1.41% 1.36% *** 0% *The Performance presented is for the period of November 1, 2012 through December 31, 2012. **Net of fee performance was calculated using actual fees paid. ***The three-year annualized ex-post standard deviation of the composite and benchmark is not presented because 36 monthly returns are not available. Strategy Churchill Management Group ( Churchill ) is a registered investment advisor. Churchill has been in business since 1963. For GIPS purposes the firm definition does not include direct real estate assets. The Equity Dividend Income was created in November 2012. The performance inception of the Equity Dividend Income is November 1, 2012. Past performance is not indicative of future results. Churchill Management Group claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Churchill Management Group has been independently verified by Ashland Partners & Company LLP for the periods January 1, 1991 through June 30, 2014. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Equity Dividend Income has been examined for the periods November 1, 2012 through June 30, 2014. The verification and performance examination reports are available upon request. The firm maintains a complete list and description of composites, which is available upon request including the policies for valuing portfolios, calculating performance and preparing compliant presentations. The Equity Dividend Income Strategy objective is to put together a fully-invested equity portfolio with a well diversified group of high quality stocks paying a dividend higher than the average found in the S&P 500. The strategy looks to include high quality companies that have a high probability of continually growing dividends that are paid to shareholders. Earnings stability and future earnings prospects are reviewed for dividend payment stability and potential for longterm capital appreciation. In addition to strong fundamentals, the portfolio also wants to hold those dividend paying stocks that are more technically favorable with positive relative strength as compared to other dividend paying stocks. While this strategy stays fully invested and is subject to market risk, the strategy looks to diversify among several investment sectors and may utilize a stop loss philosophy to help rotate away from underperforming sectors. Actual returns contain fully discretionary non-wrap accounts/non-asset based brokerage fee accounts and have been open at least one full calendar month. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Accounts with asset- based brokerage fees are not included in the composite, nor are accounts with trading restrictions. Results are presented gross and net of management fees, and other expenses that may be incurred in the management of the account, and include the reinvestment of all income. Net of fee performance was calculated using actual fees paid. Typically recent past performance will not be reconciled and might change at the end of the following quarter once reconciled internally. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. The U.S. Dollar is the currency used to express performance. Fees and Costs Our current fee schedule is typically 1.20% on account relationships under $500,000, 1.00% on account relationships $500,000 or more and less than $2.5 million,.80% on the next $2.5 million,.70% on the next $5.0 million, and.60% on the balance. If at any time an account relationship which exceeded or was equal to $500,000 drops below $450,000 due to investments or withdrawals or otherwise the fee will increase to 1.20%. However, these fees may vary depending on the specific relationship, including fees paid as a result of Solicitors Agreements. Churchill believes that the performance was generated with an investment philosophy and methodology similar to that described in the Churchill Management brochure, which it would expect to use for the investment of future client portfolios. Future investments, however, will be made under different economic conditions and in different securities and using different investment strategies than were used by Churchill during the time discussed herein. Furthermore, the performance discussed herein reflects investment of limited funds for a limited period of time and does not reflect performance in all different economic or market cycles. It should not be assumed that future investors will experience returns, if any, comparable to those of the clients discussed herein. The information given is historic and should not be taken as any indication of future performance. For comparison purposes this composite is measured primarily against the Dow Jones Select Dividend Index. The index was changed on November 1, 2013 from the S&P 500 Total Return Index (a growth index) and all performance numbers reported were revised. The benchmark change was due to the Dow Jones Select Dividend Index being a more comparable index since it is one of the more widely followed dividend indexes and has a similar objective, yield percentage, and style as the Equity Dividend Income strategy. The Dow Jones Select Dividend Index consists of 100 of the highest dividend-yielding securities (excluding real estate investment trusts REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for the United States equity securities. The Index is for general industry-wide comparative purposes only and may reflect higher equity allocations than the composite. Churchill believes that the comparison of its clients performance to a single market index is inappropriate because the clients portfolios may not be as diversified as the market indices shown and may also contain stocks with different market capitalizations. Due to the differences among Churchill s investment strategy and the composition of these indices, Churchill believes that no such index is directly comparable to accounts that use Churchill s investment strategy. Average Dividend Yield is calculated by taking the sum of the market value of each security divided by the total market value of all common stocks in the composite multiplied by the current yield of the security (current yield is furnished by FTID). The calculation excludes securities not classified as common stocks including cash and ADRs. An account invested in the strategy today that is equally weighted across the strategy's investments may have a different average dividend yield because securities that have grown in size in the composite have a greater weighting on the average. Barron s Ranking: The Barron's ranking is for Fred Fern of Churchill Management Group ( CMG ). The rating may not be representative of any one client's experience because the rating reflects a quantitative and qualitative analysis of factors that may include only a sample of the experience of CMG s clients. The rating is not indicative of future performance. CMG did not pay a fee to participate in the Rankings, but did purchase reprints of the Barron's article. According to Barron s: The formula Barron s uses to rank advisors is proprietary. Barron s disclosed that they typically receive 350-450 nominations each year. The rankings are based on data provided by individual advisors and their firms. Advisor data is confirmed via regulatory databases, cross-checks with securities firms and conversations with individual advisors. The formula Barron s uses to rank advisors is proprietary. It has three major components: assets managed, revenue produced and quality of practice. Investment returns are not a component of the rankings because an advisor s returns are dictated largely by the risk tolerance of clients. The quality-of-practice component includes an evaluation of each advisor s regulatory record. GIPS is a registered trademark of CFA Institute. CFA Institute has not been involved in the preparation or review of this report/advertisement.