John Gorlow
| Apr 12, 2017
In March 2003, I launched Cardiff Park Advisors in California, becoming an SEC-registered firm a few years later. I’d had enough experience with Wall Street culture to be disillusioned and to know what I didn’t want (more on that in a moment). Cardiff Park was my opportunity to create what I did want: a financial advisory firm based on respect, transparency, and my own principles and values.
Then and Now
I didn’t always see Wall Street as “Financial Enemy #1.” Early in my career I worked for several elite Wall Street brokerage firms, searching for a platform to leverage my interests, ambition and talent in ways consistent with my values and beliefs. To borrow a line from the hip-hop star Kendrick Lamar, “I wasn’t on the outside looking in. I wasn’t on the inside looking out. I was in the dead center looking around.” And as I looked around, I saw many financial service professionals short-changing clients, twisting arms, and operating in unethical ways. There was no moral compass. Sure, Wall Street operatives were encouraged to dress the part (plaid shirt, pocket square, Hermes tie, cordovans) but the interior workings were crude. Managers were rewarded for looking the other way while top producers raked in huge profits, often by misusing their influence, misleading their clients and abusing their power.
This spun me into doubt and no small amount of soul-searching. I knew who I was and I knew the difference between right and wrong. I remember how conflicted I felt, sitting on the 35th floor of a gleaming high-rise and feeling increasingly disconnected from it all. My disillusionment turned to cynicism, then to a desire to do something about it. l promised myself that I would use my experience, somehow, some way, to fix things for those being duped into buying inappropriate investments and paying sky-high fees.
I took a two-year hiatus, returning to school to earn an MBA with an emphasis on accounting, finance and statistics. Through readings in the Journal of Finance and coursework on Portfolio Management, I came across the work of Fama & French. Certain ideas started to take root, such as how markets price risk, the sources of expected return, the benefits of diversification, and the informational efficiency of markets. Finally, I had the major pillars and a framework for action, based on a century’s worth of empirical data.
Equipped with experience and education, I needed a new way to put my talents to better use. Some lessons can only be learned from living, and the stripes I earned on Wall Street were valuable, just not in the way I imagined they would be. Working with another financial firm could only lead down a similar path. And so the idea of Cardiff Park Advisors was born.
Fourteen years later, Cardiff Park is proof that a company does not have to compromise integrity or take ethical shortcuts to succeed. We have a clear investment strategy, charge low fixed fees, offer full service, and stay away from high-fee funds. The more we express and live by our values, the stronger we become. It’s why we attract thoughtful clients, and why the Cardiff Park name means something. Like attracts like.
Marketers urge businesses to “create value around values.” I agree. Today we’re expanding our business by hiring employees who agree with passive investing principles, understand how money works, share our commitment to client service, and have personal integrity. I continue to feel passionately about not letting investors be misled by salespeople with smooth pitches. I’ve welcomed many clients to our business who knew they stayed too long with their overpriced stockbroker, but somehow couldn’t cut the strings.
Unfortunately, things may get worse for many unsuspecting investors. Wall Street has the ear of our new President, and financial measures enacted to protect consumers are being dismantled. Over the past several months we’ve learned that Dodd-Frank may be weakened, new fiduciary standards are likely to be significantly diluted, and the Consumer Protection Financial Bureau probably will be gutted. Meanwhile, some 10,000 Baby Boomers are retiring each day. Their financial risk will increase as a result of these changes, not to mention potential changes to Medicare, Social Security, and the Affordable Care Act.
As the winds of financial reform have shifted, Cardiff Park Advisors is more relevant than ever. Your trust makes our business possible, and your referrals help us grow. Thank you for your continued support.
March 2017 Market Returns
The first quarter of 2017 brought good news to investors. US economic data was positive, unemployment continued to fall, and consumer confidence was high. The European Central Bank and the Bank of Japan remained in stimulus mode. While yields have risen since last summer and the Fed has raised rates twice in four months, the Fed seems to have adopted a lenient “wait and see” attitude. Volatility was at historic lows, though it may increase with central banks signaling tighter conditions ahead.
For the month, global markets returned 1.2% (dividends included), following February’s 2.80% and January’s 2.7% returns. Absent the 0.12% return posted by the U.S., global stock markets were up a solid 2.54% for the month. Emerging markets did much better than developed markets, posting a 2.53% return for the month.
World Asset Classes: Looking at broad market indices, emerging markets gained 11.44%, outperforming both US (5.74%) and non-US developed markets (6.81%) during the quarter. Real estate investment trusts lagged their equity market counterparts at -0.27%. The value effect was negative in the US, non-US, and emerging markets. Small caps outperformed large caps in emerging markets and non-US developed markets, but underperformed in the US.
US Stocks: The broad US equity market as measured by the Russell 3000 index recorded a positive 5.74% return for the quarter. Large Value underperformed Large Growth (3.27% vs. 8.91%). Small Value (-0.13%) significantly underperformed Small Growth (5.35%). Large Caps outperformed Small Caps (6.03%) vs. 2.47%).
International Developed Stocks: In US dollar terms, developed markets outperformed the US equity market (6.81% vs. 5.74%) but underperformed emerging markets indices which gained 11.44% for the quarter. Small caps outperformed large caps in non-US developed markets, 7.71% vs. 6.81%. The value effect was negative across all size ranges in non-US developed markets.
Emerging Markets Stocks: In US dollar terms, emerging markets indices gained 11.44%, outperforming both the US (5.74%) and developed markets (6.81%) outside the US. The value effect was negative among large cap stocks in emerging markets but positive among small cap stocks. Small caps outperformed large caps, 13.02% vs. 11.44%.
Select Country Performance: In US dollar terms, Spain (14.02%) and Singapore (13.2%) recorded the highest country performance in developed markets, while Canada (2.77%) and Norway (0.34%) returned the lowest performance for the quarter. In emerging markets, India (18.85%) and Poland (18.46%) posted the highest country returns, while Greece (-0.33%) and Russia (-4.32%) performed the worst.
Real Estate Investment Trusts (REITs): Real estate investment trusts (REITs) lagged their equity market counterparts. US REITS underperformed Global Ex US REITS (-0.27% vs. 3.62%).
Commodities: The Bloomberg Commodity Index Total Return declined -2.33% during the first quarter of 2017. The industrial and precious metals complexes were the top performers. Aluminum gained 15.21%, silver rose 13.75%, and gold climbed 8.06%. Energy was the worst-performing complex. Natural gas declined -17.15%, while unleaded gas fell -12.31%. Heating oil declined -10.39%, and WTI crude oil fell -9.11%.
Fixed Income: Interest rates were mixed across the US fixed income market during the first quarter of 2017. The yield on the 5-year Treasury note was unchanged, ending at 1.93%. The yield on the 10-year Treasury note decreased 5 basis points (bps) to 2.40%. The 30-year Treasury bond yield decreased 4 bps to 3.02%.
The yield on the 1-year Treasury bill rose 18 bps to 1.03%, and the 2-year T-note yield increased 7 bps to 1.27%. The yield on the 3-month T-bill increased 25 bps to 0.76%, while the 6-month T-bill yield rose 29 bps to 0.91%.
Looking at total returns, short-term corporate bonds gained 0.69%, and intermediate-term corporate bonds gained 1.16%. Short-term municipal bonds generated a total return of 1.20%, while intermediate-term municipal bonds returned 1.91%. Revenue bonds performed in line with general obligation bonds.
Do you have questions or comments? Contact me. I’m here to help
John Gorlow, President
Cardiff Park Advisors
888.332.2238 Toll Free
760.635.7526 Direct
760.284.5550 Fax
jgorlow@cardiffpark.com