The Baldwin & Clarke Advisory Services team meets with several investment management companies throughout the year and reads countless market reviews and analyses provided by them and other investment sources. Not surprisingly, we have found a few current topics you may want to discuss with your financial advisor.
- Rising interest rates have resulted in negative returns through April for most bonds (Treasuries, high yield, high quality corporates). By contrast, floating-rate bank loans (as measured by the Credit Suisse leveraged loan index) are up 1.8% year to date. Another area that has provided relative stability has been investment grade floating-rate notes. These are bonds issued by investment grade companies that, as the name implies, have a floating interest rate usually tied to a short-term benchmark rate. Floating rate bank loans and notes have limited duration and consequently are not significantly impacted by rising interest rates. They also provide the potential for rising income. Are they worth a look?
- Growth stocks have significantly outperformed value stocks for some time. Growth stocks tend to have higher valuations as well as higher projected earnings and sales growth than value stocks. Value stocks tend to do well when economic growth and the dollar are strengthening and inflation and interest rates are rising. Are value stocks about to come back in favor? Food for thought.
- High quality dividend yield stocks have suffered in this rising interest rate environment. Is it time to take advantage of discount prices in these high-quality offerings?
- High yield corporate bonds have offered strong returns for the last four years. With narrowing credit spreads are they still worth the risk? Should positions be cut back, or at least rebalanced even though high yield bonds have historically had a negative correlation with U.S. Treasuries?
- The last three months have seen a spike in U.S. equity market volatility after a prolonged period of low volatility. Periods of high volatility since 1997 have lasted for an average of four years. The S&P 500 has not fared well during those periods. Is it time to cut back or at least rebalance U.S. Equity exposure? What to make of high corporate earnings and a strong economy as a counter balance?
- Many believe that the opportunity for Alpha generation and total return is greater outside of the U.S. Should some equity exposure be allocated to Europe and Japan?
- There is near consensus on the opportunity for excess returns in Emerging Markets (EM) as compared to developing world markets. Is it time to increase allocations to EM? What about small cap international equities?
- Treasury Inflation Protected Securities (“TIPS”) can offer a “safe haven” (Treasuries) exposure while providing a hedge for realized inflation. Is it time to diversify your core bond exposure? (Also see floating-rate bonds and notes above.)
- If you maintain a long-term, well-diversified strategic portfolio, is it time to allocate some assets to a global tactical allocator? A GTAA manager will tactically allocate assets among most traditional asset classes based on their ongoing analysis of worldwide economic and market conditions.
As you can see, there is a lot to consider when developing and maintaining an investment strategy. While we espouse a long-term perspective with our clients, it helps to maintain an active dialogue with your advisor to ensure a thoughtful, forward looking approach to the management of your portfolio.
None of the above is intended to be, nor should it be taken as investment advice. Consult your investment advisor. Past performance is not indicative of, or a guarantee of future performance. Asset class diversification is not a guarantee against loss.
Charles H. Baldwin, MBA, CLU, ChFC
Co-founder and President
About the author: Chuck is the co-founder and principal of BaldwinClarke and the President of BaldwinClarke. Chuck specializes in working with entrepreneurs, individuals, and their families to deliver high touch planning solutions designed to create, preserve and transfer wealth.