Portfolio Update

This is an unprecedented time in history, and we hope all of you are safe and healthy. Our offices are functioning well. However, our facilities are closed to clients in accordance with the Tarrant County mandates. Behind the scenes, our investment team is meeting by phone and web meeting daily, often several times per day. We are in constant communication with our fund managers, digesting as much information as quickly as possible, working diligently to make good decisions on your behalf.

As you may remember, we elected to reduce equity exposure by 16% earlier this month. That has turned out to be a good decision. That reduction, combined with selective allocations by our fund managers, have resulted in outperformance in our equities. Our equity positions have not suffered as much as the rest of the market.

A few weeks ago the DJIA peaked at over 29,500. Due to the anticipated economic damage of the COVID-19 pandemic, the index fell to 18,213… a drop of nearly 39%. Over the past three days, we have seen a bounce back to 22,000 as of this writing.[i]

There are many reasons for this retracement. Congress is finalizing a $2T stimulus bill. The bill is primarily designed to provide relief to workers and newly unemployed[ii]. Thursday’s unemployment report revealed a record 3.3M people filed for unemployment benefits between March 15th to March 21st.[iii] The purpose of the bill is to get money in their hands and prevent foreclosures in the near term. Additional to the fiscal stimulus from Congress, the Federal Reserve Bank is staying aggressive. Chairman Powell today said, "we have policy room in other dimensions to support the economy”.[iv] His comment comes after the Federal Reserve has bought over a Trillion dollars of fixed income instruments over the last two weeks to help support liquidity in the bond market.

We are hopeful for a quick recovery, but today we are cautious. For the most part, much of the economy is at a standstill. Even the past 24 hours we have seen more states and municipalities restricting movement. Travel is virtually nonexistent. Outside of food, retail is slowing to a standstill. New York is now regarded as the epicenter of the outbreak. More self-quarantines are being recommended every day.[v]

When we review the charts from past market crashes, there were dramatic short-term rebounds, only to be followed by another dip[vi]. Based on all the data, we believe there is a possibility this could happen again. No one really knows. But given all the information we have today, we feel it is prudent to take advantage of this week’s bounce and further reduce equity exposure to a measured degree. Today, we are liquidating positions in Federated MDT Small Cap Core Fund, and trimming a portion of our exposure in Thrivent Mid Cap. This represents a reduction of approximately 16% of our original equity allocation, bringing our total reduction to approximately one third.

We currently have no plans to liquidate all equities, as the remaining equities in the portfolios are performing relative to the overall markets. Today’s decision is based on what we feel is suitable and advantageous for now in our managed portfolios and according to our approach. Furthermore, this approach is not recommended for different strategies such as 401(k) retirement plans.

Undoubtedly our economy will come back, as will the markets. We are diligently monitoring each position and will be looking for an advantageous reentry. In the meantime, we appreciate your trust as we work hard to make the best decisions possible for your investment assets. We have received a lot of support from you the past few weeks and are very thankful; we do not take it for granted. As always, if any of us can answer any questions or discuss further, please do not hesitate to reach out.

Posted by Jeri on 3/26/2020 5:31:05 PM


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