1. business and industrial

KLC Quarterly
March 31, 2015
Volume 1, Issue 3
Volatility and 2015 Expectations
The warning for 2015 that
volatility will increase has thus far
played out as expected. In fact,
the S&P has undergone a stretch
of 28 trading days during which it
did not produce back-to-back
gains. This is quite rare and has
only happened twice since
WWII. We could point to a
litany of items causing this:
weakening economic data,
uncertainty as to when the Fed
raises rates, the stronger dollar’s
impact on earnings, the fall of oil
prices impact on earnings; you get
the picture. This confluence of
events has lowered performance
expectations for the S&P 500.
Operating earnings are now only
being projected to rise by about
5% where-as last quarter
projections were about 12% for
2015. This has also caused
starting P/E (Price to Earnings)
ratios for 2015 to rise to ~18 vs.
staying in the ~17 area. The
average market
P/E ratio is 16
times earnings.
Generally, a high
P/E ratio means
that investors are
anticipating higher
growth in the
future. The
probabilities are
the highest they
have been for the
S&P 500 to finish the year with a
small negative return since the
recovery.
The reason I say this is the
following: With a P/E of 20 being
very overvalued, beginning the
year at ~18 vs. ~17 doesn’t give
valuations a lot of room to
expand to help returns without
getting into over-heated territory.
When the Fed raises rates, a
possible reaction by markets is an
adjustment to valuations to the
tune of 9-10% (based off of the
estimated duration of equities)
Continued on Page 2
On the Upside
Developed international markets have been a bright spot so far this year. They are finally appearing to have
turned the corner by outperforming the S&P 500 for the first time in years. The European Central Bank has
committed to buying $1.2 trillion of bonds to kick start their own version of Quantitative easing at the same
time as the U.S. has phased theirs out. The weakening Euro should also help their export markets and sales of
multi-national companies domiciled there. Japan is also undergoing aggressive quantitative easing to achieve the
same effects. The weakening Yen vs. the USD will help exporting company profits. Also, the $1.1 trillion Japanese government’s pension plan, the largest such plan in the world, is looking to increase their allocation to
equities from 24% to 50%. That is a large buyer signaling that they will be buying Japanese and other country’s
equities. We are looking at opportunities in the developed international space. And as far as oil, it continues to
hover around $50/barrel. Low oil prices could persist for the rest of the year as OPEC, namely the Saudis,
have the ability to and show no signs of slowing supply to the market. It might be some time before we see
$80-$100/barrel oil.
KLC Quarterly
Page 2
Volatility and 2015 Expectations Continued
I’m not trying to cause panic, just trying to set expectations that this could be in the cards. We could also turn
in another low double-digit year if valuations rise modestly and/or the Fed surprises the markets and decides
not to, or raise rates this year. If I knew which way this wind was going to blow, I would not be sitting
here typing this, but instead sipping a mojito on my private island in the Caribbean.
Stick to your asset allocation. Don’t try to time the market if you are fully invested
already. If you do have new cash that was previously not in the market, there may be
some opportunities down the road and waiting might be prudent.
Chris C. Ginder
Vice President/Portfolio Manager
Get to Know Diane Loftus!
Diane works diligently to maintain client account data, transcribe memos and letters, file client information
and to assist the KLC team with client paperwork when opening new accounts. She is responsible for keeping
all personal client information current. If you have an address or e-mail change, Diane is the person to
contact.
Prior to joining Kuntz Lesher Capital, Diane was a receptionist and administrative assistant for a regional
accounting firm for five years. Her background is multi-faceted, and she’s brought a great deal of experience
to the KLC team.
Diane lives in Lancaster. She spends her weekends visiting with her mother or
enjoying time with her son, daughter-in-law and two grandsons, who are the apples of
her eye. She loves to take photos and spends many hours working on family
scrapbooks.
As many of you may know, Corinne Fairbairn who had been with Kuntz Lesher
Capital for 9 years, has happily retired. Now, you will be welcomed by Diane’s bright
and smiley face when you walk into the Kuntz Lesher Capital lobby. Please give a
warm welcome to our new team member!
Diane Loftus
Administrative Assistant
The Nitty Gritty of Gifting to Charities
From Your IRA
Recently, The Kiplinger Letter stated that a goal of the 2015 Congress is to overhaul our tax system.
Hopefully, something will finally occur this year. One of the provisions that continues to expire and then
passes at the last minute in Congress is the provision to gift directly to charities from IRAs. This income isn’t
included in the donor’s income!
The provision is a great tool for individuals over the Required Minimum Distribution (RMD) age (70 ½ or
older). An IRA owner can contribute up to $100,000 per year from their IRA directly to a charity. This
contribution then counts toward the investor’s RMD from the IRA. Therefore, the contribution is not taxed
on one’s federal income tax return.
Continued on Page 3
Volume 1, Issue 3
Page 3
Nitty Gritty Continued
This provision again expired at the end of 2013 but was recently revived
to cover 2014. Hopefully, it will be enacted again for 2015. However, be
aware, not all charities are eligible for the contribution. Donor-Advised
funds are NOT qualified as an eligible charity. The provision for the
contribution requires the funds go DIRECTLY to an eligible charity, not
a fund for future contributions.
A donor advised fund is a charitable giving vehicle that provides a flexible
way for donors to pass money through to charities—an alternative to
giving directly to the charity or creating your own private foundation. With
Donor-Advised funds, the donors enjoy administrative convenience (the sponsoring organization does the
paperwork after the initial donation), cost savings (a foundation requires around 2.5% to 4% of its assets each
year to run), and enjoys the tax advantages now. Donor-Advised funds were created to manage charitable
donations on behalf of organizations, families, or individuals.
To participate in a Donor-Advised fund, a donating individual or organization opens an account in the fund and
deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the
fund, but retain control over how their account is invested, and how distribution of the monies goes to charity/
charities. Donor-Advised funds are a way to make a charitable deduction today (to receive a current year
charitable deduction on your tax return); even if the donations aren’t made to a charity until future years. In the
meantime, the contributions grow within the fund and you can take your time to determine the charity/charities
to which you want to contribute.
Kuntz Lesher Capital does have access to Donor-Advised funds through Charles Schwab. Please reach out to us
if you have any questions or interest in this type of investment.
Congratulations!
Lauren Reitz, Investment and Operations Officer for Kuntz Lesher Capital, recently
acquired the Chartered Retirement Planning Counselor designation from the College of
Financial Planning. The CRPC® designation entails successful completion of
a proctored exam which covers the entire retirement planning process. This includes
meeting multiple financial objectives, personal savings, income taxes, and fundamentals
of estate planning, asset management, sources of retirement income,
employer-sponsored retirement plans, retirement cash flow and investments.
Please join us in congratulating Lauren on this accomplishment.
KLC Quarterly
1800 Fruitville Pike
PO Box 8408
Lancaster, PA 17604
Phone: 717-399-1700
Fax: 717-291-0691
www.klcinvest.com
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