Stocks and Bonds
Changing economic and market conditions require the creative use of investment tools. Our tool bag contains stocks (equity), bonds, options, exchange traded funds (ETFs) and mutual funds. The most effective mix of vehicles changes as markets shift. Our investment process for every client begins with a well-researched understanding of the current interaction between the economy and markets.
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This Season’s Macroeconomic Context
In response to the Great Financial Crisis of 2008, the US Federal Reserve (the Fed) began buying US Treasury Bonds in programs known collectively as Quantitative Easing (QE) or “money printing”. Via QE and zero percent interest rate policies (QE/ZIRP), the government made money cheap and easy for banks to lend. The excess printed dollars produced dramatic inflation in asset prices like stocks, bonds and real estate. Yet, surprisingly, goods price inflation (e.g. groceries, clothes and furniture) was reported to be modest. Correspondingly, financial markets are now driven by liquidity and speculative flows around the government’s stimulus and money printing programs, rather than the underlying fundamental values of the economy or individual companies. The range of QE programs have created a new investment paradigm.
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In a related trend, “passive investing”, popularized by Vanguard and Blackrock, has become a dominant market factor. As money moves from active to passive management, by definition, fewer shares are traded by active managers who consider price, value and other factors. Since the price traded on the most recent share applies to all shares, this concentration of power enables large speculators to more thoroughly influence individual stocks or whole indexes. Easy money policies combined with passive investing have enabled a new trading paradigm.
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We believe these and other factors create more volatile and unstable markets. Speculators drive prices excessively higher while being incentivized to get out quickly when market momentum shifts. Consequently, traditional value investing models are less relevant post 2008.
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Equity
To control risk and participate in the upside of this new volatile and potentially unstable market season, we've included a Trend Following methodology alongside Value, Innovative and Emerging Country for the equity portion of a diversified portfolio.
Trend
Our Trend strategy is a proprietary model based on the 200 Day Moving Average. Anticipating a future crisis which can shake markets like in 2022 and early 2023, this strategy follows markets higher while providing an active, data-driven process for getting out when markets reverse down. Our method seeks to increase long-term returns by decreasing equity exposure during large market drawdowns.
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Innovation and Emerging Markets
Alongside our investing history in technology and biotechnology sectors, our emerging markets strategy focuses on the commodities, energy, and tech-driven innovative financial services industries. However, investing in these areas carries substantial risk. When suitable, some exposure can provide both diversification and additional return opportunities.
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Bonds
While interest rates have risen in 2022, we remain in a historically low interest rate environment where government policies create inflation risk. Since the bond portion of the portfolio is intended to balance risk, we focus on high quality vehicles combined with moderate overall duration.
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Options and Mutual Funds
These instruments are also in our tool kit and may be used to hedge risks or to provide diversification when the underlying vehicles present a compelling opportunity but are difficult to access.
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