Executive Summary

Oil – and the Russian Economy – Tumble: Brent crude oil is now just $47/barrel – down 50% from its 2009 high. The Russian economy, already expected to decline 4% this year, faces further instability if energy prices continue to decline.

A “Lost Decade” of Economic Growth for Europe?: Continued deflation in the eurozone poses a major threat to lender and borrower desire to take risk. The European Central Bank (ECB) and eurozone governments must act quickly to reverse sentiment.

U.S. Equities Face Headwinds: Investor expectations for economic growth and profitability may be overly optimistic as the factors recently used to stimulate the economy are unlikely to be repeated.


The Navigator ADR/International Equity strategy gained approximately +0.37% (gross), -0.22% (net of 2.35%), for the fourth quarter ending December 31, 2014, outpacing both the EAFE (-3.57%) and the broader MSCI All Country World ex- U.S. Index (-3.87%) both of which declined by more than 3%. Our ability to have low allocations to some of the long-trending deteriorating world economies aided investment performance. For 2014, the strategy had remarkable performance gaining +9.37% (gross) +6.84% (net of 2.35%) while benchmark returns were negative. While I have the utmost confidence in this strategy to provide excess returns over a market cycle by investing in high quality, undervalued foreign businesses with improving business prospects, I do not anticipate duplicating this year’s relative performance every year. By country, the portfolio’s largest positions are in Canada, Japan and Ireland respectively. Gains were seen across the technology sector – in semiconductors (Avago Technologies +15.6% and Taiwan Semi +10.9), software (Netease +15.7%) and services (CGI Croup +13.0%). Our biggest detractors for performance continued to come from our exposure to Russia or Brazil (Mobile Telesys down over 40% and Telefon Brasil -10.2%) or from allocation to Energy and Materials (Royal Dutch -12.1% and Lyondell -26.9%). Although our investment process naturally reduces its allocation to deteriorating sectors and industries, we will almost always have some positions in large economic sectors and thus at a minimum suffer some decline when those groups experience large losses. We believe the value characteristics of the ADR strategy remain far more compelling than both its U.S. and international benchmarks as the current P/E of 13.6 is far less than that of the S&P 500 (17.8) and EAFE (16.3) with similar quality and business growth characteristics.

The opinions expressed are those of Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.

Returns are presented gross of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. For example, a 0.50% annual fee deducted quarterly (.125%) from an account with a ten year annualized growth rate of 5% will produce a net result of 4.4%. Actual performance results will vary from this example. The Firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

Net returns are shown net of 3%, the highest fee that could potentially be charged including investment advisory fees, trading, custody, investment advisory fees and any other expenses that may be incurred in the management of the account. Actual performance results will vary from this example. The Firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities.

The Dow Jones Industrial Average is a stock market index that shows how 30 large publicly owned companies based in the U.S. have traded during a standard trading session in the stock market.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performers of developed markets outside the U.S. and Canada.

The MSCI Emerging Markets Index is a free float adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

The CBOE Volatility Index (VIX) is a forward looking index of market risk which shows expectation of volatility over the coming 30 days.

The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.

Barclays U.S. Government/Credit Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government-related & investment grade U.S. corporate securities that have a remaining maturity of greater than one year.

The Barclays U.S. Aggregate Bond Index covers the U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage pass-through securities, asset-backed securities and commercial mortgage-based securities. To qualify for inclusion, a bond or security must have at least one year to final maturity and be rated investment grade Baa3 or better, dollar denominated, non-convertible, fixed rate and publicly issued.

The B of A Merrill Lynch U.S. High Yield Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.

The Barclays 7-10 Year Treasury Index tracks the investment results of an index comprised of the U.S. Treasury bonds with remaining maturities between seven and ten years.

The Barclays 20+ Year Treasury Index tracks the investment results of an index comprised of the U.S. Treasury bonds with remaining maturities greater than twenty years.

The Barclays Long-Term Year Treasury Index tracks the performance of the long-term U.S. government bond market.

The Barclays U.S. Corporate High-Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

The Barclays U.S. Treasury Bond Index is an issuances-weighted index measuring the performance of the U.S. Treasury bond market, one of the largest and most liquid government bond markets in the world.

Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.

Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request.