Greetings!
Greetings from Woodward Financial Advisors! We hope spring is off to a nice start for you. In this newsletter, learn about our trip to TD Ameritrade's National Conference, our personal financial website, and several finer points underlying the WFA investment philosophy. Finally, read about some of the things that happened behind the scenes at Woodward Financial Advisors over the past several months.
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WFA "Field Trip" to LINC Conference
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WFA Team (pictured above, from left to right): John Day, Jim Miller, Allison Palmer, Maggie Wilkins, Austin Brown, Roni Pflueger, Ben Birken
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In early February, the entire WFA staff (minus Joe Marques, who stayed in Chapel Hill to keep the office running), traveled to Orlando, FL for TD Ameritrade's National "LINC" Conference. LINC stands for
L
earn,
I
nspire,
N
etwork and
C
ollaborate. We gathered with industry experts, thought leaders, and hundreds of peers and colleagues from across the nation to learn, explore, and share knowledge. While the purpose of LINC is to inspire, challenge, and grow firms like WFA, we participated with the ultimate goal of improving our service to clients.
We thought you might enjoy hearing a highlight or two from each WFA team member who attended LINC 2018:
- "While the conference had a number of worthwhile sessions, my highlight was seeing almost 100 financial planning technology vendors in the exhibit hall. As the point person for a number of the firm’s technology initiatives, it was incredibly valuable to see both what our current partners had on display, as well as to meet new vendors to learn how we might better improve our clients’ experience." – Ben Birken
- "I attended an informative and slightly unsettling session on business email compromise (BEC) fraud schemes. During the session I learned about the various methods used to execute BEC schemes and sophisticated layers that perpetrators use to move their ill-gotten funds to banks outside the United States. The presenters then shared strategies to prevent falling victim to this kind of fraud and what to do if it occurs." – Austin Brown
- "I enjoyed several of the keynote speakers and breakout sessions, but Ian Bremmer was my favorite. Ian is a political thought leader, author, and the President and Founder of Eurasia Group. At the conference, Ian provided his view on how political developments and national security dynamics are moving markets and shaping investments across the globe." – John Day
- “One of the highlights of the conference for me came from a most unlikely and unexpected source, namely an amazing 11-year old girl named Ava who stormed on stage prior to a keynote session, representing 'the future.' In a room filled with about 2,000 mostly middle-aged people, this child actor delivered a show stopping monologue tugging at both our heartstrings and our competitive nature. She is our future employee, our future client, our future colleague, our future competitor. We can choose to adjust our mindset and to embrace her or be left in the dust.” – Jim Miller
- "My favorite sessions were the 'Service Excellence Culture' by a manager at the Ritz Carlton and the 'iRebal Roundtable.' The session by the Ritz-Carlton was a good reminder of the importance of excellent client service and empowering employees to resolve issues when they occur. The iRebal Roundtable was a small group discussion among users of a software program called iRebal. I enjoyed hearing how other firms use the program and expanding my own knowledge base about the program’s capability. I also enjoyed a session on mindfulness, presented by The Urban Monk." – Allison Palmer
- “I enjoyed getting to learn about new and improved technology being introduced both to our clients and the industry as a whole, through sessions such as 'Fintech, Innovation, and the Next Generation of Financial Services,' and 'Advanced Technology: What Does the Future Hold?' One of my highlights of the conference, though, was having the opportunity to meet and interact with several students who are currently in Financial Planning programs at top universities across the country, as they are the next generation of financial planners.” – Roni Pflueger
- "One highlight included hearing award-winning actress Viola Davis poignantly and courageously share her life’s journey; her presentation was absorbing, inspiring, and challenging. I also enjoyed listening in on a panel discussion about growing 'non-advisor' careers in a wealth management firm." – Maggie Wilkins
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WFA’s Personal Financial Website
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Wouldn’t it be great if you could see
all your various account balances in one, central location? Well now clients of Woodward Financial Advisors can, with your own Personal Financial Website!
What Is It?
Your Personal Financial Website reaches out to any linked account and pulls in current balances for you to view at any time. You can see your checking account balance, your investment account balance, and how much you currently owe on your credit card, all in one spot, whenever you want. Backed by top-level online security protocols, your Personal Financial Website only pulls in balance and transaction information – it doesn’t allow anyone to access your actual financial accounts or make transactions on your behalf.
What are the Benefits?
- An on-demand, global snapshot of your entire financial picture.
- The ability to measure assets, liabilities and Net Worth over time
- Spending and budget modules, which provide a breakdown of your expenses over any time frame
- A secure online vault to store and share important documents
- Shared access with Woodward Financial Advisors, so that we can provide timely advice without having to ask you repeatedly for updated account balances that we currently can’t see.
We are excited to share this new tool with clients, and we look forward to discussing more details during upcoming meetings.
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There’s Still Value in Value
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One of the pieces of the Woodward Financial Advisors investment philosophy is that while we don’t actively pick stocks, we do “tilt” portfolios slightly away from what the overall market looks like. We do this to obtain more exposure to certain “dimensions” of stocks that academic research suggests lead to higher long-term returns.
Specifically, small company stocks and stocks with lower relative prices (i.e., “value” stocks) make up more of our clients’ portfolio compared to how they are represented in the broad market. We know that the return premiums associated with these dimensions of higher expected returns don’t show up every year, or even every few years. But over time, these dimensions are persistent.
In the investment world, there’s been a growing discussion about the apparent disappearance of the value premium. The table below reports the trailing total returns of the market (as measured by the S&P 500 Index) and two of the most common indices of US Large Growth and US Large Value stocks.
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At first glance, not only are value stocks underperforming their growth counterparts, they are underperforming the broad market. While that’s not unheard of over 5, 10 and 15-year time frames, it’s less common.
But there’s more to the story. Not all indices are constructed the same way, and two different commercial index providers may have different definitions of “value” and “growth.” Let’s see what happens when we add the returns of the Vanguard Value Index Fund (VVIAX), which attempts to track the performance of the CRSP US Large Cap Value Index:
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Now things look a little different. VVIAX may still be underperforming Growth and the broad market, but not by nearly as much. And at the 15-year mark – which admittedly is a long time to wait to see outperformance – VVIAX does eke out a slight outperformance of the S&P 500 Index.
But wait - there’s still more. In our portfolios, we commonly use the Dimensional US Large Cap Value Fund (DFLVX) for our allocation to US Value stocks. Like the Vanguard Value Index fund, the managers of DFLVX don’t actively pick stocks or try to time the market. But unlike the Vanguard fund, the Dimensional fund doesn’t track a commercially available index. Instead, DFLVX ranks stocks based on their relative price and uses a flexible trading process to patiently construct and maintain their portfolio. It also aims to be even more “value-y” than the Vanguard fund. How has that approach worked?
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A few takeaways:
- The 1- and 3-year performance of DFLVX reinforces the idea that value hasn’t been the top performer recently. That’s ok: if we’re going to deviate from the market, we must accept that there may be times when there will be underperformance.
- At 5- and 10-years, the “deep value” nature of DFLVX has rewarded shareholders, not just relative to a different value index fund but also to the broad market.
- At 15-years, DFLVX has even outperformed the phenomenal run of US Large Growth stocks.
- Net of fund expenses, DFLVX has outperformed VVIAX, despite a slightly higher expense ratio than VVIAX (0.27% vs. 0.06%). Costs are important, but they aren’t the only criteria in evaluating investment choices.
We believe that the value premium will continue to benefit investors who have the patience to wait through those times when it doesn’t materialize. But finding the best tools to capture that premium can be more challenging than just buying any old index fund.
Important Disclosure Information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Accordingly, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by Woodward Financial Advisors, Inc (“WFA”) will be profitable. This post is not a substitute for personalized advice and is current only as of the date it is posted. The statements and opinions expressed, however, are subject to change without notice based on market and other conditions. Descriptions of WFA’s process and strategies are based on general practice, and we may make exceptions in specific cases. While WFA may use funds offered by Dimensional Fund Advisors, WFA is a distinct, independent business entity. As an independent Registered Investment Advisor (RIA), WFA is free to select whichever investments it believes are in the best interests of its clients.
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Behind the Scenes at Woodward Financial...
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- Woodward Financial Advisors is on Facebook! Want to find out which team member won the WFA Winter Olympics 2018 competition? (Yes, that person received a gold medal!) Want to know which two team members celebrated a birthday this past quarter? Click here. While you're there, please like us!
- In February, Allison Palmer gave a presentation to the NC Triangle Chapter of Ellevate, a local women’s professional network. The presentation was called “Taking Financial Control: A Road Map to Planning and Investing for Women” and included content on planning for retirement, basic investing concepts, and why women make excellent investors.
- In February, Ben Birken served as the emcee of the annual Symposium of the South Region of the National Association of Personal Financial Advisors (NAPFA). The event was held in Atlanta and simulcast to 9 locations, including Durham, where Allison Palmer served as the host of the simulcast site.
- If you haven't already, please provide us with a copy of your 2017 tax return once it's available. You may drop it off in person, mail it to us or upload it via a secure web portal we establish for you. Please do not email us your return as an attachment since it often includes personal identification information (e.g., Social Security number). If you have any questions, please let us know!
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Thank you for reading our first 2018 e-newsletter. Have a fantastic spring!
Woodward Financial Advisors
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1504 E. Franklin St. Suite 105
Chapel Hill, NC 27514
T: 919 929 2495
F: 919 929 2496
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