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Thoughts from United's Annual Wealth Management Group Investment Forum

By Charles N. Waterhouse, Vice President and Senior Financial Advisor

Every year our Wealth Management Group Investment Team gets together in a formal Investment Forum. This gathering allows our team to take a step back, do a little star-gazing, check in with the financial markets, kick the tires on our investment process and generally share thoughts and ideas. This year was no exception. We had great participation and lively debate. And some new faces…

One new addition to the team that will soon be gracing these pages with his own brand of investment wisdom is Thomas McCarrell. Tom joined United at the end of May after a long career at a major regional bank in the middle of the state. He is a Chartered Financial Analyst and has been managing investments for individuals, endowments, and institutional clients for 25 years. Tom and his family just relocated to the Tecumseh community. We welcome him to the team.

Now, back to the forum…

This year’s financial market discussion focused on a generally improving economy in the U.S., and the underlying outlook for domestic stocks. These discussions were tempered though by the downside risks associated with the European debt crisis and our own "fiscal cliff." We look for modest improvement in the economy over the next several quarters, even though there has been some softening in manufacturing and exports. The main bright spot of late is in the housing market, where the inventory of homes for sale has dropped drastically and housing starts are increasing.

Domestic stocks could move sideways for a while, as corporate profit growth continues to slow. Valuations remain below long term averages making stocks attractive, but with economies slowing in Europe and Asia, exports for many companies will decrease. Near term stock market growth may be muted, but buying high quality stocks that pay solid dividends is a good strategy to add income to our clients’ accounts.

We also explored additional methods of adding income to our clients’ portfolios. Over the past year, we’ve incorporated the use of Master Limited Partnerships (MLPs) as an additional income source. These MLPs own oil and gas pipelines and lease them to producers. The MLPs currently pay investors about a 6% dividend.  We’ve also increased our REIT exposure to enhance yield. Other strategies to enhance clients’ returns we are exploring include preferred stocks, emerging market debt and unconstrained bond funds.

We remain cautious of the downside risks. The Eurozone clearly has more pain to go through (and more to share with the rest of us), as the risk of default for several countries remains. The seesaw effect of problem definition and apparently resolution is wearing down investors here at home. But perhaps the larger concern is with our own "fiscal cliff." If Congress doesn’t reach agreement to avoid tax increases and spending cuts scheduled to take effect at the start of next year, the result could push the US into recession. Clearly, we expect no resolution before the election in November, but we do remain hopeful that Congress can make a measured step in the right direction before the deadline.

At United, our clients’ goals and dreams are important to us. That’s why we keep improving our process and keep you informed about what we’re thinking. Watch for a future article from our newest team member, Tom McCarrell.