As investors, we are bombarded by misdirection on a regular basis. There is always an advertisement, expert commentator, radio broadcast or television show that talks about last year’s best-performing asset. What kind of an expert does one need to be to determine last year’s best-performing investment? The real trick is to know what this year’s or next year’s best performing asset class will be! We all know intuitively this is not possible. Yet it is very difficult to ignore the “showmanship” convincing us otherwise. We are left with the feeling that we are missing out on something if we don’t act on this convincing advice.
It is hard to get away from all these daily influences, but that’s exactly what we at Bell need to do as your investment managers. A big part of our job is to formulate long-term allocations that have the highest probability of success. Sure, there are the disruptions of the investment “magic show” along the way. Today, we have war, inflation, labor constraints, fiscal policy tightening, growth concerns and market volatility. It’s natural for our clients to wonder what we are doing with investing to respond to this environment.
In reality, it’s what we did last year that has the greatest influence today. Last year, we held the average maturity of fixed income accounts near the shorter end of the range, while focusing on interest income as the drivers of bond returns. So far this year, the average fixed income allocation is around 1.5% ahead of popular fixed income benchmarks. Our equity allocations looked to sectors of the market where multiples were more reasonable. We also looked to increase dividend income as a means of reducing volatility. So far this year, our world stock allocation is consistent with global returns, while our dividend stock strategy is well ahead of popular domestic stock indexes.
Each day, we ask ourselves if client portfolios are positioned for success over the coming two to five years. To that end, we see future returns being more muted than the past decade. Our allocations tend to favor income, in the form of both interest and dividends, as a larger component of returns moving forward than it has been over the past decade. We still overweight technology in equity allocations. Because we see technology as the best way for corporations to improve productivity and efficiency, our thesis is that technology remains a solid long-term allocation. Right now, it is a source of elevated volatility – but that does not disrupt the long-term benefits. Our palette of options does not end with bonds and stocks. We look for value in other asset classes as well. There is a long list of alternative asset classes, with real estate being one of the more popular. Currently, this is a bifurcated allocation with its strongest sectors in multi family, warehouse and cloud storage facilities.
Volatility is always difficult. We see it ebbing in the short term consistent with peace talks between Russia and Ukraine, but expect it to return as the market refocuses on other economic factors. It has been a long time since the market experienced inflation or a tightening Federal Reserve. We feel there will be a period of re-acquaintance among investment markets that will bring a few tantrums, manifesting themselves as more frequent market swings that are larger than historical norms.
Be assured that we will remain calm in exercising our responsibilities, looking for allocations that have the least number of unknowns and the highest probability of success.
Investing and Wealth management products are: Not FDIC Insured | No Bank Guarantee | May Lose Value | Not A Deposit | Not Insured by Any Federal Government Agency