Quarterly rebalancing is coming up this week and I wanted to pass along some of the changes I plan on making to your portfolios. The overall asset allocations will continue to focus on market risk and the investing time horizon. The changes that are being made focus on management style as well as rotating to sectors that are likely to perform better in the near term.
Some of you may have already received updates earlier in the week on the changes that I plan on making. For those that have not, one of the biggest changes you’ll see is the an actively managed fund introduced as part of the domestic portfolio. Many have become concerned that a market turnaround is looming. Passive investments would simply follow the market downward while actively managed funds have the opportunity to minimize losses in a portfolio.
Other changes in the portfolio include a reduction in exposure to the Chinese market as tariffs may pull these stocks down. China cannot be counted out since it will continue to be a major economic power into the future. I have increased exposure to the European markets as trade with China is not encumbered by the current U.S. protectionism.
Another area that you will see changes is in your bond investments. As the Fed has been increasing interest rates, I have slowly been moving more into intermediate term bonds. As rates rose, short term bond investments limited losses as higher yielding bonds became available. Now that we’re moving past historically low interest rates, we’ll be taking advantage of the higher yields these longer term bonds offer.
There are other small changes in the portfolios as well. I have been making adjustments like these for the past year. Other investment firms are also starting to see the same headwinds that I have noted.
Just the other day, Bank of America/Merrill Lynch released a report that said, "The 20-year long risky stock premium has finally been wiped out… investors should pay for safety and be compensated for risk, but the opposite has been the case for 20 [years]." Investopedia responded to the report by publishing an article that explained what investors should do next. The article outlines the many of the same steps I have already done.
Reach out if there are any questions or concerns.