Due to the conflict in Eastern Europe, we and our research partner BlackRock decided to recalibrate portfolios. Below is an updated view on the overall economy, as well as a summary of our planned adjustments to portfolios, in order to optimize returns, while mitigating risk.
As a reminder, working with BlackRock (a $10 trillion asset manager), our overall approach to building investment portfolios is:
- We develop an initial diversified strategy tailored to your individual preferences
- We continuously evaluate changing macro conditions in the markets
- We recommend adjustments to portfolios each quarter based on these market conditions
As of March 11, 2022:
We recommend recalibrating our asset category exposures to reflect the changing macro environment. While the immediate trajectory of the conflict remains highly uncertain, it is likely to have lasting economic and financial consequences. For our purposes, we expect weaker European industrial production and higher commodity prices to be the primary macro transmission channels – adding fuel to the supply-constraint-driven-inflation phenomenon already impacting global economies.
In Europe, interruptions in trade are interfering with industrial production schedules, and dampening investment, while pronounced energy price increases are depressing consumer disposable spending and causing more cost-push inflation. Globally, while less severe relative to Europe, commodity price increases place net negative pressure on real growth. Based on these impacts, we are cutting European-heavy developed market equities and cutting growth-outlook-sensitive global financial equities to fund increases in US equities and commodities.
Therefore, we recommend:
- Moving underweight non-US developed market stocks, getting ahead of potential upcoming earnings misses and downgrades as financial and economic disruptions in those regions
- Increasing exposure to U.S. Domestic equities, which will also encounter near-term volatility as the Eastern European conflict continues, but likely with not as much risk as non-U.S. equities
- Increasing sector exposure to energy stocks and commodities, expecting continued upside pressure on oil, wheat, fertilizer, and industrial metal prices in response to unprecedented sanctions now levied on Russian exports and lower production in Ukraine
Your advisor will proceed with incorporating these recommendations on your behalf.
