Investment Committee Meeting (May)

As part of our ongoing attention to global investment markets and trends on your behalf, we recently convened our triannual Investment Committee meeting(1). We want to share with you some of the high-level insights from the meeting and let you know some of the investment changes you may see, or be receiving recommendations on, in the coming two weeks.

Key insights:

  • We remain optimistic that the U.S. economy currently stands on strong footing. Some market tailwinds that may help the economy include strong company earnings, tax reform and repatriation of overseas monies. Headwinds to the U.S. economy include worries of inflation and international trade posturing. Growth-oriented stocks continue to modestly outperform value-oriented stocks.

  • We believe that the international markets will continue to benefit from accommodative monetary policies and political stability, the latter since populist political movements have largely been defeated at the polls. Emerging markets equity, in particular, may continue its current growth.

  • Market volatility has returned to a level more representative of historic levels, and we do expect volatility to continue throughout the year.

  • Shorter-term bonds(2) continue to perform well in light of the FED’s (Federal Reserve Board) increases in interest rates. We’re overweighting shorter-term bonds in order to catch the potentially higher interest rates that we believe are likely to occur this year. We’re also able to find increased yield in some lower credit quality (where diversification is important for risk management) and foreign bond tools.

  • Intermediate-term and long-term bonds are more susceptible to decline in value in response to interest rate hikes but provide an important ballast to your portfolio in times of volatility.

In light of the above observations, you may see trades over the coming two weeks (or investment recommendations) for the following adjustments as suitable:

  • Reallocating real estate tools to emerging market equities, the latter a sector where valuations appear attractive.

  • In tax-exempt accounts, shifting some short-term bond tools to a different short-term bond tool with a slightly lower credit rating but higher potential yield.

  • In socially responsible investing (SRI) accounts, increasing the small-capitalization(3) equity allocation, and swapping a U.S. large-cap(3) tool to one which we believe may offer increased growth potential in the current market conditions.

Please let us know your questions and comments. We always appreciate hearing from you.

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(1) In total, the committee brings 100+ years combined total experience and leverages the global footprint of Raymond James Financial, as well as significant third-party research. All LWP Wealth Managers and our Portfolio Analyst are members of the committee as well as consultants, Mark Carlton, CFA and John Mowery both of Trademark Financial Management, LLC. Trademark specializes in consulting with independent wealth management firms.

(2) Short-term bonds mature in 1-4 years. Intermediate-term bonds mature in 4-10 years. Long-term bonds mature in more than 10 years. From Morningstar.com

(3) Market capitalization refers to the total dollar market value of a company's outstanding shares. It is calculated by multiplying a company's shares outstanding by the current market price of one share. Large-cap companies have a market capitalization of $10 billion or greater. Mid-cap companies are between $2 billion and $10 billion, and small-cap companies are under $2 billion.

Source: https://www.investopedia.com/terms/m/marketcapitalization.asp

Saul Baumann