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Monthly Market Brief February 2017

Each month, our Heritage Investment team publishes a market brief to provide an overview of the major factors influencing the US economy, including a summary of key sectors and the current positives & challenges.

Click Market Brief February 2017 for February 2017 updates.

Here are some key highlights:

o January non-farm payroll jobs came in at a solid 227,000 for a pace 50,000 jobs greater than the monthly average reported in 2016
o Inflation data remains tame but continues to trend higher as year-on-year total PCE increased 1.6%
o Consumer spending ended 2016 up 2.5 percent with spending on durable goods, particularly autos, reflecting the biggest gain in consumer spending followed by a 10.2% pop in residential investment
o Manufacturing posted strong gains in January with both the ISM & PMI, Manufacturing Indices reporting strength in new orders and increasing input costs in
response to demand
o Even while job growth continues at a relatively strong pace and the unemployment rate of 4.8% is at target, there is still apparent slack in the labor market as wage pressure remains relatively weak at 2.5%
o Consumer spending increased 0.5% in December; however, the increase is likely lower quality spending as a 0.2% decrease in consumer savings likely helped fund the increase


Making Sense of Conflicting Signals: Where is the Economy Taking Us?

by Jim McElroy,
We are living in unusual times. The U.S. economy is now in its eighth year following the “great recession”. Under normal circumstances, we would expect that a recovery lasting eight years might be a little long in the tooth: the average since 1950 has been just over five years. But this has been no ordinary recovery: it’s been the weakest since the end of WWII. Not once in the twenty-nine quarters of this post-recession expansion has GDP grown at an annualized rate in excess of 5% and only twice has it grown in excess of 4%. The average number of greater than 5% quarters for the preceding ten post-war expansions has been seven. During those ten earlier expansions, the average annual GDP growth rate was 4.85% per quarter; the current average through June has been 2.08%. Is slower better and does incremental growth last longer? Or, does the tepid nature of the current expansion serve as a warning that the economy is vulnerable to an unexpected shock? The question we’re asking — the question we’re always asking — is where are we in the economic cycle: are we closer to the beginning, middle or end of an expansion? The answer to that question is obviously critical to the timeliness of investment decisions.

Investment markets are supposed to be semi-reliable predictors of the economy. The stock market, reputed to be the best market harbinger of economic growth or decline, has been in a bull market for over eight years and is near all time highs. On the other hand, fixed income markets, sporting absurdly low yields — below 2% for ten-year U.S. Treasuries and negative for many international debts — suggest anemic prospects for the economy. So, which market are we to believe? And, to further cloud the picture, this is a presidential election year. That and the fact that the two major candidates have distinguished themselves by their unpopularity create a situation fraught with uncertainty.

The continuing strength of equity performance is noteworthy in that earnings for major U.S. corporations (i.e. the S&P 500) have been declining for the last five quarters and are expected by analysts to have declined even further for third quarter, which ended September 30th. Though much of the index’s earnings decline over the past five quarters came from the energy sector and, according to FactSet, earnings would have been mostly positive without its negative impact, this does not, on its own, justify record high prices or an almost 20 multiple on trailing earnings. Either the stock market is extremely forgiving of lackluster earnings — not its reputation — or factors other than earnings are driving stock prices. We need look no further than the fixed income markets and the level of interest rates for at least one explanation of equity strength.

There are at least two ways through which interest rates influence stock prices: through their impact on overall economic activity and through competition. High interest rates obviously discourage borrowing and encourage savings, results that reduce economic activity and limit equity earnings. In addition, high interest rates raise the bar for stock returns, causing investors to require either higher earnings and/or dividends (difficult in a period of reduced economic activity) or lower stock prices. Low interest rates, or in the current case, ludicrously low interest rates, normally produce the mirror image of the above: aggressive borrowing and depletion of savings by investors and consumers and a lowered bar for equity returns. As it happens, the current environment of near zero interest rates has had only a limited impact on economic activity: the consumer is spending more and low mortgage rates are encouraging him to invest in more home ownership, but corporations to date have been unwilling to borrow funds or employ cash savings to invest in new plant and equipment. Consequently, the effect of low interest rates on economic activity has been limited and has had very little impact on stock prices. However, the impact of low interest rates on the competition for returns on risky investments, such as stocks, has been enormous. When cash management funds are yielding less than .25% and ten year Treasuries are yielding below 1.6%, a dividend yield of 2.06% (S&P 500) or higher, with the potential for growth, looks very attractive indeed. It looks so attractive, on a risk return basis, that corporations have been employing excess cash reserves to buy their own stock rather than investing in plant and equipment. Little wonder that all time highs in the stock market are coinciding with all time lows for interest rates. All this begs the question of what happens to the stock market when central banks like the Federal Reserve begin to raise interest rates.

The Federal Reserve raised short term interest rates .25% last December and said that it expected to raise rates four times in 2016. Because of a variety of weak economic news during the first three quarters of 2016, the Fed balked and did nothing. It now is signaling that it will likely raise rates by .25% this December. We believe the Fed will raise rates in December, but will continue their message of caution and patience in bringing interest rates to levels consistent with sustainable growth. As long as the Fed succeeds in conveying this message of patience, there should be no December collapse in asset prices.

It is becoming clear, even to many central bankers, that a low to negative interest rate will not in and of itself create economic growth or inflation. Those effects, like almost everything else in economic and market activity, are driven by the collective psychology of humans behaving as humans or, as John Maynard Keynes called it, “animal spirits”. Among investors it’s called fear and greed. Without the presence of optimism among economic participants, reducing interest rates to extremely low levels in order to produce growth is only so much pushing on a string. And, as many have seen over the last few years, it can also be counterproductive: desperately low rates can produce a degree of pessimism that may discourage investment and the assumption of risk. On the other hand, lifting interest rates from very low levels may not discourage investing and risk taking when in the context of growing consumer and investor optimism. And, at least domestically, consumers and investors appear to be demonstrating an incipient degree of optimism: U.S. consumer confidence has been climbing since May — the latest reading places it at its highest level in nine years (since just before the last recession); and the stock market is hovering within 2% of its all time high, which was set during the current/third quarter.

We’ve already mentioned that the absence of competition from bonds has provided a support to the equity markets. With rates set to increase, this support could slowly disappear, a future well appreciated by stock investors. Since the stock market has the reputation of discounting practically everything, we may assume that the market at current levels is not overly concerned with a .25% increase in overnight rates. However, in order for the stock market to grow from current levels, investors will have to believe that earnings growth will make a long awaited appearance sometime in 2017. In order for that to happen, there needs to be a lift in GDP well above the “muddling through” pace to which we’ve grown accustomed.

It seems to us unlikely that a 2% GDP growth rate will last indefinitely: it will either accelerate or the economy will slip back into a recession. In addition to the increases in consumer confidence mentioned above, there are signs that the U.S. economy is improving: the unemployment rate has declined to 4.8% and payroll employment is holding steady; perhaps more importantly, the labor participation rate, after having declined for most of the last nine years, appears to have bottomed (at 62.8%) and begun to rise; the housing market is steadily improving and new home prices are closing in on levels not seen since before the last recession; and the Federal Reserve, after having modestly lifted short rates from zero last December, now finally sees enough strength in the economy to consider another increase. As long as the Fed raises rates gradually — and they say that they will — then we see no reason why the domestic economy won’t benefit from higher rates. Perversely, there may be nothing like higher capital costs to quicken the animal spirits of corporations and investors. If this is correct, then this long recovery may last even longer and we might actually see significant growth and returns on invested capital.

For more information about the commentary found in this newsletter, please contact a member of the investment committee.

NextGen Under 30 Heritage Winners

Heritage is excited to announce that two of our employees have been awarded 30 Under 30 Next Gen winners! Congratulations Garrett Johnson and Kenny Brown for being picked out of 700 nominations statewide with 16  different career categories.  To learn more about this honor click here




The 50/20/30 Rule of Budgeting

by Whitney Hufnagel, Heritage Trust

Life is all about making decisions. From the time you wake up each morning to the time you go to sleep each evening, you will have likely made hundreds of decisions. Most daily decisions seem small and routine, and every now and then a major life decision is sprinkled in the mix. Most of us can probably agree that it is easy to see how major life decisions can have a large impact on our financial situation, but how many of us realize the compounding effect these seemingly small daily decisions can have on our ability to reach our financial goals?

Our daily decisions, whether good or bad, help form habits. The habits we create have the ability to carry us successfully towards or destructively away from our goals. Creating a budget is just one tool that can help foster and maintain healthy financial habits. Budgets allow us to make sure we are spending our dollars wisely and in a manner that is appropriate for our unique situations and interests. Often times, people don’t attempt to budget or give up on budgeting because it can be time consuming, confusing, boring, unrealistic, or feel too restrictive; however, used in the right way, a budget can be very powerful and aid in daily decision making.


The article below discusses a simple 50-20-30 rule to budgeting that may make budgeting easier for a novice and quicker for a pro. Simply put, 50% of your income should go towards living and essentials, 20% should be allocated towards financial goals, and 30% should be allocated towards those things you want but don’t need. As the article mentions you can adjust the percentages in a way that fits your unique situation. However, try not to reduce the 20% allocation toward financial goals. If anything, increase that allocation.

Please remember, this is a rule of thumb and does not ensure financial success. It is simply a tool that can help you determine whether your decisions and habits are financially healthy, help you identify areas of improvement, and help you maintain a level of awareness to make sure you are spending your dollars in an enriching way for your unique lifestyle. If you would like to discuss budgeting or financial planning in more detail, please contact us to see how we can help you.

New to Budgeting? Why You Should Try the 50/20/30 Rule –

If you’re new to budgeting, figuring out how to manage your money each month can feel overwhelming. Not only do you need to organize, but you also have to make difficult decisions about how to spend your cash. Relying on the experiences of others can help only so much, because your income and expenses are unique. Someone may be able to spend $2,000 per month on rent in Arlington, VA, but that kind of spending may not work for you.

Continue Reading Here

Investment Outlook – JULY

The World, the U.S. and the Markets


  •   The U.S. economy is in divergence from the economies of Europe and China.
  •   Europe is growing more slowly than the U.S. and now faces the added stress of the   British exit from the EU.
  •   China continues to slow and is now beset by institutionally driven over-capacity.
  •   The U.S. consumer should keep the U.S. economy moving in a positive direction.
  •   The markets were shaken by the news of the “Brexit” vote, but were not crushed.Volatility should continue at a high level.
  •   Stocks are not cheap, but are also not wildly overpriced.
  •   Bond yields are extremely low and long dated fixed income asset prices are particularly vulnerable to potential increases in interest rates.
  •   Cash equivalents provide stable value, but little or no yield.

  The stock market shows resiliency, bouncing back from stressful events like the “Brexit” vote. It may be the most attractive of the investment choices. However, we recommend employing cash and short to intermediate term bonds to dampen volatility.

There once was a time when all we needed to know about the economy occurred within the confines of our national borders. Then, the free world was rebuilding itself from the devastation of World War II and the U.S. was the building supply company, bank, grocery store and general merchandiser to the world. There was no U.S. trade deficit. That was over fifty years ago and the global economy has changed dramatically. The U.S. is no longer the sole driver of economic growth, not because it has stopped growing, but because the rest of the world has recovered from the war, developed and learned how to compete. Today, the three largest world economies are the European Union, the U.S. and China, in that order. Over the last forty or so years, the domestic U.S. economy has become increasingly linked to the economies of its trading partners, both overseas and across borders. Despite the entangling nature of this process and the inevitable economic correlations that occur on a global basis, there are always divergences. The major divergence that exists today is between the U.S. economy and the rest of the world. While the U.S. economy appears to be somewhat healthy (despite a looming debt burden and entitlement liabilities, we do have low unemployment and positive GDP growth), the economies of both China and Europe face serious stress.

The news from Europe that the United Kingdom has voted to leave the European Union is a particularly distressing development in a region that has already experienced its share of challenges. Although GDP in Europe has been increasing for over three years, it has been at a slower pace than that of the U.S. and has required the European Central Bank to maintain interest rates at even lower levels (zero to negative) than has the U.S. Federal Reserve. Most of the growth has come from Germany and France while Greece, Italy and many of the peripheral members of the EU have been languishing in recessions. Terrorism and the flood of migrants from Syria and Africa have strained the budgets of many of the weaker nations, many of whom were already weakened by the raft of austerity measures imposed by budget hawks in Brussels. The news that the U.K. is giving up on the EU has a profound psychological effect on the continent and the world. The actual exit cannot occur for at least two years and there are many negotiations that must occur before anything becomes final. But, since one interpretation of economics is mass psychology expressed through markets, the “Brexit” vote itself may be enough to depress global and European growth.

On the other side of the world, China’s GDP has grown almost eightfold — about 9% a year — over the last twenty-five years. Nevertheless, the People’s Republic of China is now facing some of the paradoxes inherent in that almost oxymoronic state, a planned capitalist economy. In allowing some decentralization in its provinces, the central committee emboldened and monetarily encouraged local bureaucrats to develop infrastructure and products for China’s bright new future. This effectively created thousands of “capitalist roaders” without a market discipline to moderate their acquisitive instincts. The first result of this ill-conceived program was over production of housing, transportation, municipal services, infrastructure, capital goods, consumer products and debt. This, of course, led to the dumping of consumer products and capital goods on international markets. The next result has been high unemployment, intolerable in a worker’s paradise, and a restive population. A rebellion is highly unlikely, but there will continue to be corruption trials and other assignments of blame. In short, China’s growth rate will not return to 9% anytime soon and appears to be headed south of 6%. This retrenchment will continue to place downward pressure on the economies of the developed and developing world.

Unlike the U.S. of yesteryear, the domestic economy is not totally immune to these international stresses. Although the U.S. has run a trade deficit for most of the recent past, close to 50% of S&P 500 earnings come from non U.S. sources. Weakness in foreign demand and the relative strength of the dollar during the current period of international stress have taken a toll on corporate income statements. Though declines in corporate profits have no direct impact on GDP, declines in the international sales of large U.S. corporations do have a negative impact on capital expenditures, a component of GDP, and on hiring. Capital expenditures by non-energy companies have remained weak throughout the current business expansion. And payroll employment has recently slowed to an increase of only 38,000 in May from an average increase of 155,000 in the prior two months. Labor productivity — output per hours worked — is strongly influenced by corporate expenditures on more efficient capital equipment; in the first quarter of 2016 — the most recent report — productivity declined by .6%. It remains to be seen if the decline in payroll employment and productivity is only a statistical blip, a sign of an aging expansion or the result of an absence of capital investment due to corporate timidity. We prefer to believe in the latter explanation, but the current expansion is a little long in the tooth (eight years) and well past the time when corporations normally would ramp up capital expenditures. If the economies of Europe and China deteriorate and drift into recessions, it would increase the odds that the U.S. might experience a similar fate. We don’t believe that this will happen, at least not in 2016, even with the fear-inducing issues in Europe and China. The main reason for our optimism is the consumer.

Despite the benefits to the U.S. of improving foreign trade and the negatives associated with a shrinkage in international transactions, the U.S. is not an export driven economy. More than two-thirds of the U.S. economy comes from consumer spending, and the consumer is doing well: unemployment is below 5%, payroll employment continues to improve (despite a disappointing May number), salaries are finally growing, housing starts are averaging over 1100 per month, gasoline prices are almost 40% below where they were five years ago, interest rates continue to favor the borrower, retail sales remain strong and inflation is still quiescent. In the spirit of “it’s an ill wind that blows no good”, the “Brexit”-induced global angst has created some benefits: the Fed is likely to postpone again an interest rate hike and dollar strength has lowered prices on imported goods. The U.S. has its issues – an aging population, exploding national debt due to out-of-control retirement benefits – and the payroll employment numbers will bear watching, but as long as the consumer remains optimistic, economic troubles overseas should not derail the progress of the domestic economy.

In the financial markets, the news of the British vote hit like a bombshell. Despite warnings that the vote would be close, most investors believed that the British people would never do something so un-British as to jump off a cliff without considering the consequences. The vote was probably prompted by immigration concerns and fears of vanishing British sovereignty, but the result was a clear negative for those who support globalization and the expansion of world trade. On the day the results came in (Friday, 6/24), the S&P 500 dropped 3.6% and yields on U.S. Treasuries dropped to the lower levels of their recent ranges. The damage continued on the second day of trading (Monday, 6/27), but by the third day Tuesday (6/28), the markets began to recover. Despite all the excitement, trading remained orderly and there were few glitches in computerized systems. It was the worst one day decline since last August, but only brought us even with the previous week’s close. It certainly didn’t compare with some of the more horrific declines of the last ten years. And it was definitely not a “crash”. Nevertheless, dramatic market events usually produce aftershocks for days and weeks following the first impact: we expect to see heightened market volatility well into July.

It is difficult to muster great enthusiasm for any investment market as we approach the dog days of summer. Stocks, while not wildly expensive on a valuation basis, certainly aren’t cheap. Price/earnings multiples are high relative to the averages over the last ten years, but not when compared with the averages over the last sixty years. They certainly are discounting more earnings growth than is justified based on recent history: corporate profits have declined for each of the last four reported quarters and analysts’ expectations are for a decline in the quarter just ending (Q2, 2016). Dividend yields look very attractive when compared with the yields on ten year bonds, but most things do.

Bond yields are at absurdly low levels everywhere but in the higher risk categories. Despite our inclination to believe that interest rates will never rise again, we know they will. When they do, bond prices will plummet for even the highest rated bonds. (We should note, however, that if interest rates increase because of quickening economic activity, lower rated credits (junk bonds) may increase, instead of decline, in price.)

And what can we say about cash? As low as yields are on bonds, they’re even lower on cash equivalent securities. Central banks everywhere have pushed yields to zero and beyond in order to curtail savings and stimulate borrowing and spending. American investors can take some comfort in the knowledge that at least dollar denominated cash investments are yielding above zero.

It’s possible to make an argument that stocks, particularly U.S. stocks, are the most attractive investments among the three traditional asset classes. Despite all the clear evidence of stress and weakness across the globe, U.S. equities have generally held onto their somewhat elevated prices. Even the “Brexit” vote was not enough to shatter the optimism of investors, though it did cause many to doubt. There’s an old saying on Wall Street that one shouldn’t fight the tape. If it has any meaning, it is that the market has a better sense of where the future lies than pundits and opinion makers. We would agree that the market is prescient, but we also know that it’s not infallible.

Investors who remain fully invested in stocks will likely be rewarded with higher prices and better returns over the long run, but they will also experience a good bit of volatility and the fear that they might be wrong. Within the allocation guidelines that are appropriate for our clients’ long term goals, we recommend maintaining a meaningful equity position, but we also advocate a healthy dose of volatility dampening investments: cash equivalents and short to intermediate term fixed income securities. The weeks ahead could produce more fireworks than just those on the Fourth of July.

Not Investment Advice or an Offer This information is intended to assist investors. The information does not constitute investment advice or an offer to invest or to provide management services. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations. As with all investments, there are associated risks and you could lose money investing.

For more information about the commentary found in this post, please contact a member of the investment committee.

June Retirement Report

Solutions for a Stressed-out Nation — Mature couple discussing financial matter with advisorHow stressed are we? In May of 2014 New York Life Retirement Plan Services sponsored a research study which shed light on individual stress levels, its causes, and how best to combat it.

Fiduciary Seminar Alert — Plan fiduciaries have a primary responsibilities to understand and prudently discharge their duties in accordance with ERISA and their plan document. This section provides content and extra fiduciary training for plan fiduciaries.

How to Encourage Positive Retirement Outcomes in Tax Exempt Plans — Tax exempt organizations seem to have a different attitude towards the implementation of these strategies. Find out what they are in this section.

When “Float” is a Bad Thing — Float refers to the earnings or “compensation” accruing to a service provider while a plan’s contribution remittance (or other assets held in suspense) is awaiting deposit or distribution. Find out how to keep compliant.

To read these and other featured stories, visit Heritage Institutional or click to view the latest Retirement Report.

Leaning Into Leadership

What does it take to build a great community? And what’s the difference in a good Unknowncommunity versus a great one? Many would argue it’s leadership. Heritage takes pride in our community and our people through the involvement in local leadership programs like the statewide Leadership Oklahoma program and city programs.

According to Heritage’s Tony Scott, Vice President, Relationship Manager, “Community leadership programs reward participants through education about the inner workings of their community and through exposure to community leaders in business, industry, and government.”

Unknown-1Scott got to witness firsthand how leadership programs serve to match active and engaged residents with programs and services of interest to them, which is mutually beneficial.

Aaron Jack, Director of Development and Marketing, was initially surprised by how much he was personally impacted by each class. “I’d come home and be exhausted simply because of how much I had learned and interacted during the day. The program exposed me to aspects of our city I likely would have never encountered.” He strongly encourages anyone who is asked to participate in a Leadership program to do so.

Scott believes being a part of the local community leadership program taught him a lot about the rapidly growing metro-area community, the infrastructure required to support its growth, and the many related community-wide services and activities growth demands. Scott spent several years as a Chamber volunteer helping coordinate leadership classes for participants in classes that followed.

Founder and president Bond Payne explains that Heritage exists to serve clients and the Unknown-2community and that Heritage can not accomplish that purpose without employees who live in, care about and are engaged in the community. “That is why we have made a commitment to encourage and support our employees’ participation in Leadership OK and Leadership OKC where they re-ceive the knowledge and leadership skills to make an impact on our city and state and, ultimately, the lives of our clients,” said Payne.

Participants go on tours, lectures and hands-on learning opportunities to see all facets of community and civic planning and programs. Other Heritage employees who have graduated from state or community leadership programs include Mike Carroll, Leah McCombs, and Matt McGuire. To learn more about how to get involved in leadership programs in your area, contact your local Chamber of Commerce.


Heritage Summer Social

Each summer we gather to celebrate our company’s anniversary and to enjoy the company of our partners, friends, and supporters.  This year we invited our guests to take a first look at The Heritage, which is on the verge of a historic renovation in downtown OKC. The building will also be our new home in 2017. Rainy skies didn’t keep our guests away and we’re thankful for each and every one of more than 200 guests who attended last night.  We look forward to a bright future in our new space!


View from a 5th floor window.



Brad Knowles, Bond Payne, Aaron Jack, David Luke

Brad Knowles, Bond Payne, Aaron Jack, David Luke

Urban Land Institute enjoyed a tour complete with the history of the building.

Urban Land Institute enjoyed a tour complete with the history of the building.

We will have offices on the first floor and basement while Saxum will take part of the 5th floor and newly-constructed 6th floor. We look forward to more tenants joining us.

We will have offices on the first floor and basement while Saxum will take part of the 5th floor and newly-constructed 6th floor. We look forward to more tenants joining us.

Nothing is more Oklahoman than a barbecue sundae.

Nothing is more Oklahoman than a barbecue sundae.

View from the rooftop south.

View from the rooftop south.



Legacy and the Aubrey Echo

by Bond Payne, Chairman/CEO Heritage Wealth Management Company

Bond Payne

Bond Payne

How can a legacy be measured?  Do you measure it in dollars, the number of friends or grandchildren you have, or maybe the edifices that bear your name?  Many of our clients have achieved financial security for themselves and their families, but as they begin to come to grips with their own mortality, they begin to think in terms of what they are leaving behind and how to best care for those they love.

When I moved back to Oklahoma City in 1993, I was looking for a job in the oil and gas industry. The economy was very slow in Oklahoma City and not much had changed since I had gone away to college.  Most of my high school friends had gone away to college and never returned due to the lack of job opportunities in Oklahoma.  However, I was fortunate enough to connect with a number of oil and gas producers who had been through the hard times and, through grit and good fortune, were still hanging on.  I would typically meet them for lunch at the Petroleum Club for a long lunch and listen to their stories about the poor condition of the industry.  Then I was introduced to Aubrey McClendon.

I met Aubrey at his office at 63rd and Western.  At the time, Chesapeake was operating out of a few small office condominiums that have now been replaced by a sprawling campus. Aubrey came out of his office, introduced himself, and we pressed on to Flip’s for lunch.  For the next thirty minutes, he peppered me with questions and talked about Chesapeake while we ate. Then we hustled back to his office and, by the time the interview was over, the whole process had taken only 45 minutes.  It was apparent to me that this guy was different.

While I did not get the job, I continued to follow Aubrey as he built Chesapeake and began to transform our community.  His employment practices and charitable giving raised the bar on every single company in town.  The community projects he funded became the cornerstones of a higher quality of life that was attractive to young workers and benefitted everyone.  He challenged us to think big, be more and do more.  His vision, leadership and irrepressible energy was inspiring to me as we grew Heritage from a small, independent trust company to become the pioneering, sustainable wealth management company in the Southern U.S with more than $12 billion under administration.

Recently, in conjunction with our redevelopment of the historic Journal Record Building, we commissioned a study of the Oklahoma City multi-family housing market.  One of the findings of the report was that Oklahoma City has one of the highest populations of millennials in the U.S.  And I’m sure you have read that millennials are believed to be a key driver of future economic growth, just as the baby boomers were in the post-war era.  It occurred to me that the reason all of the millennials are in Oklahoma City is largely because of Aubrey McClendon and his visionary transformation of the energy industry and Oklahoma City.  Without Aubrey’s vision for creating a corporate campus and community that was appealing to bright young workers, and without him raising the bar for all of us in the business community, I believe none of this would have happened.

Many of the brightest young people I encounter around town are here for two reasons:  1) they were born here and stayed here for because they got a high paying job at a dynamic company, or 2) they came here because Aubrey McClendon brought them here to work.  I have dubbed this group the “Aubrey Echo”, because I believe they will have an impact on our community that will make the unbelievable work that Aubrey did during his all-too-short life look small in comparison.  His greatest legacy will not be what he did while he was here, but the impact that he will have for generations to come.

Heritage Team Runs in OKC Memorial Marathon


April 24th marked tIMG_8577he 16th Oklahoma City Memorial Marathon with nearly 25,000 runners of all ages in the kids, 5K, Half Marathon, Relay and Marathon, and Heritage proudly participated. In addition to the runners, hundreds of volunteers and businesses help along the course and support the runners. The race begins at the site of the Memorial in downtown OKC.

The Heritage 5 person relay team included Kenny Brown, Joni Guy, Jeff Asher, and Jennifer Pellow. Unfortunately Rusty Riggs developed a stress fracture while training so her friend Karreen stepped in to run her leg.

Our 2016 #OKCMarathon runners.

Three Heritage employees completed the Half Marathon: Matt McGuire, David Luke and Megan Bowers. We thank them for running and everyone in the community for supporting this race and all it stands for: #runtoremember.

Heritage marketing coordinator Jennifer Pellow, who ran in the relay, recounts her experience. “I was moved seeing all the fireman doing the half marathon in full gear, respecting all the fireman who were on the scene to help during the bombing. You know that was a huge challenge but, they seemed grateful to have that honor.”



“I also loved all the kiddos with their hands out as we ran by! It made my heart happy to be running,” she said.


Our 2016 #OKCMarathon runners.



INVESTMENT OUTLOOK – 2nd Quarter Heritage Market Brief


Second Quarter 2016


  • Despite a number of positive economic releases, the Fed made an unsurprising decision in March to leave the Fed Funds rate at a target of 0.25%-0.50%, citing spillover risks from weakness in global economic growth.
  • The U.S. labor market continues to improve as 215,000 jobs were added in March, and the labor force participation rate finally made a move in the right direction to 63% from a cycle low of 62.4% in September 2015.
  • Despite recent interest rate increases, the FOMC remains committed to gradual increases while balancing long-term goals of maximum employment and inflation of 2%.
  • While average hourly earnings increased 2.3% year-over-year, Fed policy makers believe increases of 3%-4% would have to be seen before materially impacting prices.
  • The U.S. consumer remains healthy with real disposable income increasing 2.9% year- over-year; however, this has not yet translated to a considerable increase in spending.
  • Thin inventory and strong demand continue to push housing prices higher, with many markets rising to pre-financial crisis levels.
  • The March ISM Manufacturing Index reversed a contractionary trend in place since September 2015 as it posted a reading of 51.8, driven largely by new export orders.
  • Inflation remains below target as indicated by the year-over-year Core Personal Consumption Expenditures Index (PCE less food and energy) reading of 0.96%.
  • The Fed’s median forecast for 2016 GDP growth is 2.4%; however, this may prove difficult if consumers continue to save increased disposable income rather than increase spending.



  • While interest rates remain range bound, individual bonds held to maturity should continue to provide downside protection.
  • It is likely that volatility will continue as the Federal Reserve is expected to continue raising interest rates, S&P 500 stocks no longer appear cheap relative to earnings, and revenue growth remains challenging.
  • Emerging market economies remain at risk to rising U.S. interest rates; however, the asset class should be additive to long-term returns as demographics are favorable and the sub- asset class remains attractively valued at less than 11 times next year’s estimated earnings.


Even after the Federal Reserve raised interest rates for the first time in nearly a decade in December 2015, we expect the central bank to remain committed to an accommodative monetary policy which should keep current yields low relative to historical levels. Thus, we believe an overweight in stocks relative to bonds is appropriate from a risk/return perspective. Our focus on valuations has led us to believe that U.S. small-cap stocks are becoming more attractive after underperforming their large-cap counterparts for the last two calendar years. We are still maintaining our underweight to U.S. small-cap equities
but to a lesser degree than over the past couple of years. Despite weaker growth outside the U.S., we remain disciplined and maintain a strategic allocation to foreign markets, especially emerging markets where valuations appear much more attractive. Foreign small-cap stocks should be additive to the portfolio return in the long-run as small-cap companies tend to enjoy higher earnings and cash-flow growth relative to large-cap companies. Since, much of our small-cap exposure is in European small-cap companies, European accommodative policy should prove to be beneficial in the long-run as well. While our fixed income exposure remains underweight due to the current risk/return profile, we continue to purchase individual fixed income securities as bonds play a vital role in the portfolio.

We believe alternative exposure remains vital to portfolio diversification. While
we maintain a position in U.S. REITs, we have taken the opportunity to trim where necessary due to our belief that the asset class has potentially reached overvalued territory after outstanding growth throughout the recovery.

These views represent the opinion of the Security Selection Committee which are based on qualitative as well as quantitative factors. These quantitative factors are primarily driven by valuation research which then forms our subjective assessment of the relative attractiveness of asset classes and subclasses over a 3- to 5-year time horizon.

Heritage Institutional – April Retirement Report

Each month, our Heritage Institutional team publishes the Retirement Report, which provides timely news and updates for plan sponsors and fiduciaries of defined contribution plans.  This month’s topics include:

  • 2016 Tax Saver’s Credit Participants may be eligible for a valuable incentive, which could reduce their federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If they qualify, they may receive a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly) if they made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10 percent to 50 percent of their annual contribution.
  • IRS Retirement Plan Reporting and Disclosure Requirements Administrators or sponsors of retirement plans are generally required by law to report certain information with the IRS, the Department of Labor, and the Pension Benefit Guarantee Corporation, and disclosure to affected parties depending on the plans’ type, size, and circumstances.
  • Pass or Fail? Each year you receive a “pass” or “fail” from your service provider regarding required non-discrimination testing (the Actual Deferral Percentage test and the Actual Contribution Percentage test). The ADP/ACP tests govern the amounts of deferrals and/or matching contributions that highly compensated employees (HCEs) are allowed to make or receive in relation to those of non-highly compensated employees (NHCEs).

Click here for the latest Heritage Institutional Retirement Report