Public Market Update

Global stocks rebounded following a significant correction in the fourth quarter of 2018.

Q2 was a reminder that market volatility is a very real factor with US equities up 14%, International equities up 10%, and Bonds rallying as well.

As we had discussed in our posts last year, the correction in Q4 was likely fueled by three primary factors:

  1. Trade wars, especially with China
  2. Tightening financial conditions with rising interest rates and Fed bond sales to begin unwinding QE
  3. Slowdown in economic growth

Throughout 2019 we have seen all of these factors somewhat revert:

  1. President Trump and President Xi have made significant strides towards a trade agreement between the US and China
  2. The Fed has changed its course, curtailing the QE unwind and no longer projecting rate increases in 2019
  3. Economic growth has moved from a negative to more of a neutral, albeit forward indicators are still not positive

Despite the recent market success, it is important to put things in perspective.

The US stock market is still 97% overvalued relative to historically relevant indicators (see Chart I below):

Chart I – The Shiller PE Ratio for S&P 500 – Highly Predictive of the Next 10 Year Returns

The above chart is a great reminder that we are still in an environment where equities are available only at a significant premium.

While it is impossible to accurately predict the immediate next move in markets, the aggregate of indicators point to a neutral to slightly over-exuberant current state.

The last six months of volatility are a great reminder for investors to maintain a long-term view of their investments and to stick to the strategy that they selected.

Public Portfolio Update

LGA clients are allocated across a number of different public strategies.

Each strategy is executed to its specific charter, including the time period including the last six months of volatility.

For Index investors, we rebalanced portfolios to systematically sell high and buy low while tracking market trends.

For Global Rotation investors, we were fully invested but defensively positioned to blunt the declines.

For Tactical investors we were heavily protected against the declines of Q4 and cautiously re-entered positions in early Q1 to catch some of the run back up.

We will continue to diligently manage each client’s portfolio to the selected behavioral strategy and risk profile.

We also continue to encourage our clients to stick with their behaviorally-chosen strategy, and to focus on long-term goals and objectives.

The one exception to this advice would be if clients find themselves not able to tolerate the absolute or relative pain of their specifically-chosen strategy when it doesn’t work.

An example of this would be extreme anguish with absolute losses in downturns for fully invested portfolios such as index or global rotation (e.g. “I can’t stand seeing my portfolio decline!”).

Another example would be extreme FOMO (fear-of-missing-out) when markets rise to highly overvalued levels and tactical portfolios miss some of these late-stage gains.

We all will experience some frustration and anguish in these situations, after all we are all human with feelings and emotions.

However, if a client is experiencing extreme emotion in these situations, it is important to visit with an LGA Private Client Advisor to discuss whether there is a better strategy fit.

Private Investments Update

LGA’s private investments have had a mixed start to 2019.

On the positive side, two of our GP’s have begun their exit processes and hope to profitably wrap -up by mid-year.

Conversely, we will shortly have a litigation proposal for clients in a GP where we believe this is our best probability for investment capital recovery.

We have also had a handful of GPs who have had highly delayed K1 tax reporting, which is frustrating but often a reality with private investing.

As such, the majority of privately-invested clients are advised to file an extension of their taxes, if they aren’t doing so already.

In additional news, we continue to make huge strides in developing our more simplified fund-of-funds and direct “lower-cost” options:

LGA IncomePlus Fund:

We are happy with the continued success of our Fund-of-Funds product.

Our team has now achieved $17.1 million of commitments and we recently welcomed our first set of outside RIA investors (this helps with continuity for future funds).

The fund also posted its 3rd 6% annualized quarterly distribution, and continues to track our targeted 11-14% annualized return at exit.

IncomePlus Fund I will close during the back half of this year.  Please reach out to your Private Client Advisor if you would like to add to your position.

LotusGroup Longevity Fund (“LLF”):

As most of you have read over the past year, the launch of LLF was a monumental step forward for our firm and our clients.

Some of the key benefits of this work include:

  1. Greater control of the investment process (minimizing mismanagement and fraud)
  2. Significantly lower costs for clients with a reduced layers of fees and deep vendor negotiations
  3. Improved oversight of key vendors for timely and accurate performance and tax reporting

We are extremely proud to have raised $10.2 million in the opening four months of the fund.

Furthermore, we have aligned ourselves with some excellent Family Offices and RIAs who we see as important and crucial strategic partners.

One challenge we have faced is with approval of the fund at TD Ameritrade, who has consistently denied a number of previous GPs (e.g. Pravati, JCR, etc).

On this front, we are working to build a new custody relationship with the industry leader Charles Schwab.

Schwab has already agreed to host both IncomePlus and LLF, and may offer an opportunity for our clients to also reduce trading costs on public portfolios (stay tuned).

Final Note on Private: While we cannot always control what various GPs do, we continue to see a bell curve distribution of winners, losers, and average performers.  While this historically has resulted in strong risk-adjusted returns for private investors, we do not simply accept this fate.  We are working very hard at LGA to improve the ease of investing and diversification (IncomePlus Fund), while also working toward reducing costs and improving control for our investors (LLF).  We will always act as your fiduciary, fighting for your interests each and every day, and providing timely updates with new information.  Results can never be guaranteed, but we work hard each day to improve the odds for your current investments and for each year going forward!

New Addition to LGA

We wanted to share some exciting news, that many of you are likely already reaping the benefits of.

We celebrate the addition of our newest Private Client Advisor to the LGA Team, Ms. Devonee Kershner!


Devonee comes to us by way of Dallas, having over 12 years of Advising and Planning experience, a bachelors degree in Personal Financial Advising from Texas Tech University, along with holding her CFP designation for 8 years.

Devonee has predominantly worked with client’s who accumulate wealth as business owners, specializing in the medical fields.

What we have enjoyed most about Devonee is her infectious laugh, genuinely big heart (she fits right in with the team!), her ability to connect with clients and her great desire to serve them to her best abilities.

We know that with those great attributes, past experiences, and our LGA tribe; she will be nothing short of successful in helping clients to maximize human potential and “Make.Life.Count.”

Warm Regards,

The LGA Investment Team