The last few weeks (and especially the last few days) have brought levels of volatility into global capital markets not seen since last October’s oil-related swoon. This time around, catalysts for equity market weakness include:
- China stock market volatility, currency devaluations, and economic instability
- Price declines in commodities and their impact on emerging markets
- Timing of a decision on interest rate policy by the Federal Reserve
Our reaction to the recent volatility is to use this opportunity to add to long-term positions and stay the course toward your long-term objectives.
That’s not to say we have blinders on and cotton in our ears. When markets present opportunities, we intend to take advantage. However, in times of weakness like that experienced thus far in Q3 (which is not atypical – keep in mind the Taper Tantrum of 2013 and US Credit downgrade in 2011), we recommend changes if our positioning is asynchronous to the perceived risks. Today, we believe our positioning is appropriate for the current macro environment.
Specifically, in most portfolios:
- We are underweight to bonds in expectation of rising interest rates over the intermediate-term. There may be short-term risk-off runs toward U.S. treasuries, but the risk/reward tradeoff is less compelling with yields near all-time lows. The bonds and bond funds we utilize are largely positioned to withstand a rising rate environment
- We have exposure to developed non-US markets where compelling valuations and weaker local currencies are yielding strong returns despite the recent sell-off.
- Our emerging market managers are actively pursuing opportunities in this area of the market, and managing expectations for slower growth in China and other export-heavy countries.
- We have a comfortable allocation to low correlation funds which often benefit from times of dislocation and/or are less correlated to equity and bond markets.
As opportunities arise, you can be sure that we will look for ways to either enhance the return and/or reduce the risk profiles of your portfolios. For the time being, however, we are acting on the viewpoints described in the four bullet points above and making asset allocation decisions in client portfolios accordingly.
The Bronfman E.L. Rothschild Team
Bronfman E.L. Rothschild, LP is a registered investment advisor. Securities, when offered, are offered through Baker Tilly Capital, LLC, member of FINRA and SIPC; Office of Supervisory Jurisdiction located at 10 Terrace Court, Madison, WI 53718, phone 800.362.7301. Bronfman E.L. Rothschild, LP and Baker Tilly Capital, LLC are not affiliated.
This publication should not be viewed as a recommendation, an offer to sell, or a solicitation of an offer to buy a particular security or service. The commentary provided is for informational purposes only and should not be relied on for accounting, legal, tax, or investment advice. Financial information is from third-party sources. While such information is believed to be reliable, it is not verified or guaranteed. Performance of any indexes is provided for reference and competitive purposes only without factoring any fees, commissions, and other charges. Individual results achieved by investors will be different from those of the indexes. Indexes are unmanaged; one cannot invest directly into an index. The views and opinions expressed are those of Bronfman E.L. Rothschild, LP, and they are subject to change at any time. Past performance does not imply or guarantee future results. Investing in securities involves risks, including possible loss of principal. Diversification cannot assure a profit or guarantee against a loss. Investing involves other forms of risk that are not described here. For that reason, you should contact an investment professional before acting on any information in this publication.
© 2015 Bronfman E.L. Rothschild, LP