What have been the main themes of your business so far this year?

Many of our clients – financial advisors and institutional investors – have been lowering their exposure to actively managed equity funds this year. Generally, this has taken two forms: first, investors with policies that declare specific equity allocations they will maintain in their portfolios, and second, investors that have given up on active management in favor of passive funds and ETFs. The first of these reasons is logical to us. Equity markets have risen considerably in the past five years and allocations to stocks are out of kilter with respect to many clients’ stated policies. The second decision – to throw in the towel and give up on active management – is much less logical. We believe this is the very time to be selective in terms of what you own in your portfolio, rather than indiscriminately owning the whole market.

What has surprised you in 2014?
Surprising to us has been investors’ continued appetite for bond funds, in spite of the low interest rate environment, and their appetite for indexed equity funds, in spite of the full valuations of many of the stocks within them. Unfortunately, continued intervention by central banks has led to “return free risk” in bonds and a reach for return in the higher yielding stocks of lower quality companies that now appear, in many cases, to be fully valued.

What are your expectations for the duration of 2014?
Our expectation would be for the stock market to go higher, albeit at a slower pace than in the previous five years and with fits and starts that may be caused by a host of concerns including diverging business performance, slowing stimulus from central banks and unresolved geopolitical issues. Our economy seems good, but not great; we expect that earnings growth of U.S. businesses should continue, but for many companies this is more a result of share repurchases and margin improvements than top-line growth. While markets have risen considerably since 2009, we believe that opportunities exist for long-term investors who own shares of quality companies with steady top and bottom-line growth. Growing free cash flows produced by these businesses and sound decisions by their management should support continued creation of shareholder value.