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Robert McKim, SEAMARK Asset Management

American Dividend Growth Fund

Stock markets have recently found reasons to focus on the negatives, with a commensurate increase in volatility. An understatement, given the market action of just the last few days.

Leading into this correction, the US economy was trending along, strong enough for the Federal Reserve to have telegraphed its intent to raise interest rates in the fall. Nothing fundamental has really changed to that backdrop, other than the exogenous factors, which eventually have come to weigh heavily on investors. The list would include one of the usual suspects, Greece (which has now called for new elections), and China (deteriorating growth rates), emerging markets (which can’t contend well with the rising US dollar) …and then, throw in North Korea’s sabre rattling with South Korea. That’s a lot to digest all at once. Especially in front of the interest rate hike that the market had come to expect on Sept 17.

Although we are not in the business of forecasting markets, we can observe from many past experiences, the general characteristics of a market ‘correction’. Corrections are generally thought to be in the magnitude of 10% or better. We had one in 2011, and another ‘almost’ in 2014. That one only measured 9.8%, so didn’t quite measure up to satisfy the technical definition. Based on my history in the business, the usual hallmarks of a correction are… that it is sharp, fast, worrisome (vix soaring to over 30), widespread across geographies and assets, and offers no place to hide. A correction can last a few weeks from the time markets start to deteriorate, then find their bottom, base, and eventually start back on an upward course. Corrections can end as quickly as they begin, without apparent reason, other than that the selling is exhausted. Bear markets by comparison are day after day after day of tedious, but smaller declines, often lasting for several quarters. Corrections evoke short term fear of the unknown, but bear markets create a lethargy of spirit.

When picking stocks for the Marquest American Dividend Growth Fund, we use bottom up stock picking approach, which tends to focus on companies rather than the stock market. It’s a market of stocks from our vantage, so we don’t profess to know how long the current consternation will last. That said, some in our industry have professed that the current sell-off has already reached an ‘oversold’ condition equal to that of March 2009. We simply remain confident that we invest in very high quality companies that can make it through thick and thin. We are always comfortable with this high quality bias. It is what gives us the strength to buy when others are selling.

Today, share prices are more attractive than they were at quarter end. Admittedly, markets have not been performing in an orderly fashion in recent days. But once ‘normal’ trading order returns to the markets, we are confident that there will be attractively priced companies to pursue.

Robert McKim CFA
CIO SEAMARK Asset Management

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