Here is a list of things that concern us.
- Fed incentivized risk seeking
- A recent surge in risk asset prices
- Continued global rebalancing
- Continued global deleveraging
- Bail-ins as much or more than bail-outs
- Continued excess leverage in the banking sector
- Technical indicators rolling over and flashing orange
- Tired fiscal houses
- Tired fundamentals
- Experimental Monetary Policy
We continue to believe, given the above, that today’s prudent investment strategy focuses more on capital preservation. As such, we continued to reduce exposure to risk.
Global Opportunities:
Sell V-Visa: With 65% intangible asset value, risk is understated.
Sell LXP-Lexington Properties: 20% of this REIT’s assets are intangible, this hidden leverage means higher risk, exactly what we are trying to eliminate.
Add Cash: Cash gives us options, mainly the ability to buy quality companies should we run into some market weakness.
World Bond:
Sell CWB (convertible bonds): Small position with some equity-like exposure added when the S&P was at 1300, book the gain.
Sell FRA (levered bank loans): This continues our move toward quality.
Add BSV: broad market, quality, short term bonds
Select Countries:
Sell IDX (Indonesia): hot money, commodities, and valuation concerns
Sell GXG (Columbia): hot money, commodities and performance concerns
World Allocation:
Reduce exposure to IYR (US real estate), RWX (International real estate) and IWN (US small cap value): Valuation concerns and wish to reduce higher volatility assets
Add BSV: broad market, quality, short term bonds
We are aware that the Fed may blow a bigger bubble. In this scenario, we will likely under-perform our peers. Given our assessment of today’s risk v return equation, we feel the most prudent course for our clients is to have a higher focus on capital preservation.
As always, please feel free to contact me directly with any comments, questions or concerns.
“Wealth preservation and accumulation through thoughtful investing.”
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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@alhambrapartners.com
Disclaimer: The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Alhambra Investment Partners LLC, do not constitute investment advice offered by Alhambra, are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and are not warranted to be correct, complete or accurate. Except as otherwise required by law, Alhambra shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use.