As independent investment managers we will move tactically given market dynamics. For example, last week we sold our position in gold miners, raising cash to move into cyclical sectors tied to economic recovery. We told clients we were inclined to also sell some of our technology and momentum focused holdings as well.
The reason hit markets hard this week. Bond investors recognized that borrowing into the pandemic recovery will continue pushing interest rates and they will lose principal on bonds they own. Fed Chair Powell said that they would not increase purchasing longer maturity bonds. So, when there are more bond sellers than buyers, prices decline – and interest rates push up farther.
Higher rates have a detrimental impact on technology, “work from home” and the speculative stocks in the news lately. As their forecasted earnings are projected years into the future, many have traded at extreme prices based on very low interest rates and expectations for continued aggressive Federal Reserve stimulus. Now that rates are going up, those earnings and lofty valuations are being discounted – causing these stocks to fall. Some are down 30%-50% off their January highs.
The reason is simple. As the economy recovers and we inch ever closer to enjoying life as we knew it, the travel, dining, and entertainment sectors will benefit most. We also anticipate infrastructure projects to further accelerate economic recovery, so are tactically shifting cash into those sectors.
In addition to selling the gold miners, we reduced our large cap growth holdings (dominated by technology and communications stocks) and increased large cap value (gaining exposure to financials, consumer staples, and manufacturing). We also specifically increased our weighting to industrials and materials.
This is indicative of our attention to economic and market dynamics and our willingness to be tactical. Visit our website for a glimpse at how we structure client assets.
If you’re interested in learning more give us a call at (404) 941-2800, or reach out to us about your situation
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