Hall Capital “Market Views” Newsletter April 2015

Five Year Anniversary! This is the 20th edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Investment Environment Not Inhospitable
- but higher price levels will limit gains

Despite worries over oil price declines, a strong dollar, a shifting Fed policy, Putin, Greece, Yemen and China, these factors are more than offset by a predictable Fed, steady, if slow, growth, low inflation, low energy prices (exactly what some find a negative), and strong corporate balance sheets.

Our main lament is that security prices of both stocks and bonds have climbed to a level that will not allow returns we have enjoyed historically. And by historically, I am not referring to the recovery from the crisis over the last five or six years -- that is obvious -- but I mean over the last 50 years or so. The saving grace might be that low nominal returns will still provide attractive real returns if inflation remains virtually non-existent. At the moment there are no sources of inflation in sight.

A key unknown is how long term securities will react to rising short term interest rates. We have maintained that the Fed is NOT behind the curve on raising rates and has the luxury to not raise them in June as many expect.

"Alternatives" Are, Well, an Alternative
- with double digit expected returns

Alternatives generally refer to the illiquid component of the investment universe. In addition to combing through publicly traded securities we attend a few conferences each year focused on showcasing alternative concepts in the private market. The "liquidity premium" seems juicy at this time. That is, the return one receives for giving up liquidity seems large in relation to the comparable risk taken.

Our view on liquidity is you need what you need. But for the part of the portfolio for which liquidity is not needed, the return premium offered by quality illiquid investment partnerships can be quite attractive. These are usually idiosyncratic niche situations that are small and not marketed by third party firms. Contact us if you wish to discuss a couple of current interest.

Focus List
- lower risk and higher returns

Despite the drag from Exxon, the Focus List moved ahead in the volatile quarter to provide 4% total return vs 1% for the S&P 500. We now have five years of returns since we have been publishing this list. For the last five years, the Focus List returned 18% per annum which compares to 16% for the S&P 500. We believe it is safe to say that both the market and the Focus List will provide less returns for the next five years.

For individual stocks as well as selection strategies, past performance is not necessarily indicative of the future.

Hall Capital Focus List

Follow Up – from our letter one year ago

"With slow growth, steady Fed backdrop, we remain in "clear sailing" mode for now."
- Indeed growth remained slow and the Fed held steady as a rock. Stocks returned 12.7% over the last 12 months. Bonds trailed with a 5.7% return.

"Regarding the short term, note after April we move into the traditionally seasonally weak period for stocks going through October."
- The S&P 500 meandered sideways to down from May to mid-October, but rallied 7% in the last two weeks of October.

NOTE: Now in addition to ALL our quarterly letters, on our website is a tab with just the Follow Ups.

About HALL CAPITAL

HALL CAPITAL, LLC is a registered investment advisor and was formed by Principals from Arcturus Capital in 2010.
For more information, contact Donald Hall 626 578 5700 x101 dhall@hallcapitalmanagement.com