March 17, 2020
This is usually the week I start penning my quarterly investment newsletter. Like many of you, we are working from home and isolating ourselves for the safety of all. You are all in our thoughts and we want you and your family to stay safe and healthy.
This past weekend, the Federal Reserve made an unprecedented interest rate cut on a Sunday to assure all financial markets have liquidity to function smoothly. Investors read this as a sign for further concern and the markets Monday traded even lower. As we all are experiencing, the situation is very fluid with significant daily updates.
In this environment we’re fortunate to be connected in many ways that allow us to continual monitor the markets and access information. We are using all resources to assure that we are developing our best thinking and working to keep our clients’ portfolios on track to achieve their financial goals.
As 2020 began, we all felt the financial markets were fully valued and ripe for a correction of some kind. With this in mind, we reviewed all our holdings, assuring ourselves we were invested with our desired exposure to a fundamentally sound economy that might be at short-term risk.
In January, we took profits in a number of over-sized positions that had strongly outperformed the markets- even trimming a few positions that had short-term gains. Some clients checked-in asking about those sales, and we shared we wanted to “bank” some of these gains while the market was fully valued. We liked these positions then and we still like them.
With interest rates declining steadily at the start of 2020, we were already focusing on quality over income. We invested maturing securities and some cash balances almost exclusively in safe Treasury and U.S. government agency bonds or funds.
In our ETF portfolios, we had already rebalanced and reviewed our sector tilts. We had already decided to reduce our energy exposure, before Russia and Saudi Arabia started feuding, and we had replaced half our fossil fuel exposure with a Clean Energy investment.
These moves all helped protect portfolios better than the broad market through February. As March has gotten underway, the COVID-19 risk has become increasingly real in the U.S. and the markets have reacted broadly and violently, regularly tripping circuit breakers meant to moderate extreme reactions. Some of this is the result of concerned investors, but most of this volatility, is exacerbated by computer driven trading that kicks in especially at the daily opening and closing of the markets.
I don’t know where or when the markets will find stability, but I know we will be vigilantly watching and working to protect your portfolios and position them for the future rebound that we know will eventually occur. As we did in 2008, we will book valuable tax losses where we can to give you future benefits, even in a declining market. We will look for any opportunities to “trade up” investments, watching for attractive opportunities that may have previously seemed too over-valued, and we will continually focus on managing risk, protecting the downside when we can, without sacrificing important market exposure.
We know that the markets will come back. Historically, the economy often shows early signs of improvement before a stricken market does. While our travel is limited, we are fully available to you via email, phone and video. Please reach out if we can help you in anyway.