In our recent communications, we continue our focus on crafting easy-to-understand, longer-term narratives for Fiduciaries and Advisors and for their Clients. This update is going to introduce the first and near-term specific risk not priced in the current equity markets, as we process critical data and information from our proprietary research as well as corporate and governmental sources.
- We’ve developed a Virus Crisis Exit Playbook, where we highlight the specific holdingsrelative to each possible outcome. The idea is to have a “foothold” in each scenario, which will allow us to avoid short-term risks (how soon some have forgotten March’s two week crash).
This will give us time to receive and process much-needed information on corporate earnings, the Congressional battle for additional stimulus and virus testing/treatment and infection rates. We own gold across all portfolios—at the least, the record deficits and low interest rate environment will put downward pressure on the U.S. dollar; highly beneficial for gold. In our conservative portfolios (GTC and GTI), we own treasury hedges against further volatility and retain the flexibility to add to other GT portfolios if volatility spikes. We own quality equities (great balance sheets, can grow in the Virus Market, can grow if we exit) across all portfolios. We also own an overweight in emerging markets equities focused mainly on Asian exposure. Thematically, Asian countries are ahead of the Westin terms of re-openings and possess “control” governments which can respond quickly to any virus surges. Finally, we overweight corporate credit across the board—we like investments that central banks are buying and we like the yield pick-up for our income-oriented Advisors and Clients.
- The most pressing near-term risk for markets is the fight in Congress over expiring benefits and additional stimulus.
The U.S. Senate has already signaled that it will undertake new stimulus discussions right up to the last moment—July 30 is the expiration of unemployment benefits under CARES. We believe that the market is already pricing in additional stimulus and that volatility will spike if the legislative battle is drawn out. The charts clearly show the massive drop in personal income and resulting effect on GDP (almost 70% of the U.S. economy is powered by consumption). Re-openings have already resulted in infection surges, particularly in states where the reopenings occured earlier. Re-closures are clearly not factored in the current equity market price levels—this is a major issue in the economic stimulus discussions.
With this month’s positioning, we initiated a position in emerging market equities, increased our position in Gold, and added exposure to high grade corporate credit on the short end.
Finally, know that all our Strategies will adapt to fundamental or rules-based, not emotional influences. We seek opportunities for solid risk adjusted returns and to preserve capital in asset market downturns.
Recent Portfolio Changes
We initiated a position in emerging market equities. Emerging market equity valuations remain near historic lows. The combination of a weaker dollar and the beginnings of a cylical upturn should benefit the region.
We increased our position in Gold. We own gold as a hedge against uncertainty as the market digests unprecedented economic collapse and unprecedented stimulus. Additionaly, record deficits and a low interest rate envirionment will put downward pressure on the US dollar, which is highly beneficial for gold.
We increased our position in coporpare credit, initiating a positon in ulra-short income. Fed liquidity measures have back stopped high quality credits and owning these on the short-end is better a risk proposition than cash equivalents.
2 Contains international exposure
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