January 2017 Letter

January 2017 Letter

The past year brought many surprises with the British voting to exit the European Union, the Americans electing Donald Trump for President, and the Chicago Cubs ending a 108-year World Series championship drought. What’s in store for 2017?

One topic that has brought much discussion is the 1992 North American Free Trade Agreement or NAFTA. In this quarter’s investment letter titled ‘Made in (North) America’, we describe the history of the Agreement and NAFTA’s impact, especially on the auto industry. It is also interesting to note the supply side linkage of goods being assembled in different countries.

We have also included our annual Investment Outlook which summarizes our thoughts on the major trends impacting the financial markets. Despite the recent strength, we still believe that equity markets provide long-term value and would emphasize companies with strong balance sheets, growing dividends, and earnings and revenue visibility. We remain defensive with respect to our fixed income positions, anticipating a gradual rise in interest rates.

Lastly, we congratulate our two new shareholders:

Susan Wolf, Managing Director/Business Development. Susan joined Covington in 2013 after practicing law for 30 years in the area of ownership and capital structure, corporate governance and exit strategies. She received her undergraduate and law degrees from the University of Michigan.

Phong Luu, Managing Director/Portfolio Manager. Phong joined Covington in 2006 and focuses on fixed income and asset allocation strategies. He graduated from the University of California, Riverside and received his MBA in Finance from the University of California, Irvine.

We wish you and your family a healthy, happy, and prosperous 2017!