Author: colonyfamily

The calendar year 2020 was unique, to say the least. The COVID-19 health crisis brought the economy to a sudden and almost complete halt, while financial markets experienced a broad-based, severe drawdown. However, the economic recovery has been much faster and stronger than most had anticipated. This is partly because some of the most binding COVID restrictions were temporary—but perhaps more importantly, the policy response was more aggressive than during previous recessions. Markets have rebounded sharply from the March lows and broad stock indexes are back near record highs.

In our view, there remains a wide range of potential outcomes on the path forward—and this uncertainty could lead to market volatility. The intermediate-term economic outlook is largely dependent on the effectiveness and distribution of the COVID-19 vaccine. Our base case assumption is that economic recovery continues and interest rates remain low with ongoing policy accommodation. This backdrop should underpin financial markets and continue to prove favorable for risk assets like equities and credit. However, valuations are a bit stretched, particularly in US large-cap stocks.

In terms of tactical portfolio positioning, we continue to target an underweight position to both core/investment grade fixed income and to US equities. We remain fully invested in more reasonably priced international and emerging markets stocks—and note that new market cycles are often accompanied by a change in market leadership. We also continue to target an overweight position to certain diversifying and credit-oriented alternative strategies. We believe the investment case is particularly compelling given the extremely low yields across most fixed income sectors.

Please see the attached presentation that provides our assessment of the market backdrop and shares our views on portfolio strategy going forward.

Choosing a trustee and successor trustees may be among the most important decisions people make when they create a trust.  Who they select depends on a variety of factors, including the purpose and complexity of the trust, how long it’s designed to last, and the trustee’s powers. Nearly three-quarters of households with more than a million dollars in investable assets have trusts.  Click here to read further.

Presidential elections often cause investor angst. And next week’s election is perhaps one of the most emotionally charged in decades. We’ve prepared the attached commentary to share our perspective.

• History shows that the political party in power is not a significant driver of long-term investment returns. That’s not to say US presidents and politics don’t impact the economy and markets—but so do lots of other factors like the actions of foreign leaders, changes in interest rates, technological advances, and a global pandemic, to name a few. 

• As we’ve stated in the past, developing portfolio strategy isn’t based on making predictions about the future but being prepared for a range of potential outcomes. Therefore, we’ll approach this election as we’ve done in the past by looking through to other fundamental drivers of financial markets and being ready to take advantage of potential volatility if presented with attractive investment opportunities. And as the election results and policies that follow become clear, we’ll carefully reassess our views and outlook.     

• In terms of the current macro backdrop, we believe that what happens with the coronavirus will have the biggest impact on near-term economic growth. Thus, an unusually wide range of potential economic outcomes exists. Against this backdrop, proper portfolio diversification may be as important as ever.  

Please click here to read our Brief Market Commentary on the upcoming US Presidential Election.

Financial markets have experienced an incredible amount of volatility thus far in 2020. Government efforts to contain the spread of the coronavirus resulted in a sudden stop of global economic activity—one of the deepest and sharpest recessions in modern history—and a broad selloff across risk assets. Government bond yields collapsed, benefitting from “safe haven” demand. Policymakers responded quickly with massive monetary and fiscal support measures that restored confidence and fueled a strong market rally off the March lows.

Read our Investment Commentary

We hope that you find this information helpful.  Please don’t hesitate to contact us if you have questions or would like to discuss further.

The complexities of wealth require thoughtful management. Selecting a wealth service model requires an intentional look at the benefits to the family as well as how family harmony may be affected.  The process may lead to the decision to establish a single-family office, join a multi-family office, or outsource certain activities to a financial institution such as a bank or brokerage firm.  

This white paper reviews the benefits and limitations of each service model and also identifies relevant matters to help families of significant wealth better discern what may be the right choice for their family.

Financial markets have shown signs of stabilization as the economy begins to re-open, and risk assets have staged a strong recovery off their March lows.  For example, the MSCI All Country World Index (global equity benchmark) has rallied approximately +38% from March 23rd through June 19th and now stands about -6% below its starting point for the year.

In terms of portfolio activity, we’ve been quite active this year, using market volatility to opportunistically rebalance portfolios while also implementing tax loss harvest trades where appropriate.  We recently trimmed back equity positions on strength, having added exposure to portfolios in March.  We also added an allocation to high yield credit in April. 

While there is early evidence that the economic recovery has begun, there also remains a wide range of potential outcomes on the path forward.  As a result, we maintain a slight defensive tilt in our tactical portfolio positioning with an elevated cash/short-term fixed income position as “dry powder.”  We also continue to target an underweight position in US equities while emphasizing high quality stocks.  New market cycles are often accompanied by a change in market leadership—and we believe non-US stocks, and emerging markets in particular, stand to benefit from attractive valuations.  We also recommend that investors continue to develop private equity/real estate investment programs by maintaining the pace of planned commitments.  New capital deployed during periods of economic disruption often generate significant upside. 

Please see the attached presentation that provides our assessment of the market backdrop and shares our views on portfolio strategy going forward.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the ‘‘CARES Act”). The legislation is in response to the Coronavirus (COVID-19) pandemic. The CARES Act is a massive stimulus bill which includes significant individual and business tax relief as well as small business lending programs and expanded unemployment benefits. The projected cost of the bill is over $2 trillion, of which about $500 billion is allocated to temporary relief from certain tax provisions. The individual and business tax changes will provide for immediate cash flow relief. In this summary, we will review selected individual and business tax provisions and review the small business lending provisions.

Please click here to read the summary. If you have questions, please reach out to an advisor at Colony Family Offices directly or call our main line at 704-285-7300.

Financial market volatility has escalated over the last few days, reflecting a great deal of uncertainty. With investing, we believe it’s particularly important to be aware of what we don’t know. One of our favorite quotes is credited to Mark Twain, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

In today’s environment, there are clearly far more unknowns than knowns. We don’t know when the coronavirus will be contained, therefore we don’t know what the ultimate economic impact will be. However, we do know that the measures taken to stem the spread of COVID-19 will have a major economic impact regardless of how widespread the illness becomes. We also know that financial markets have aggressively moved to price in this uncertainty, evidenced by the swift and furious sell-off in stocks and other risk asset classes. But we don’t know when markets will bottom. History suggests that it’s generally best to remain invested—and that markets will likely have already started to recover well before the news flow turns positive. And as painful as it feels in the short-run, after stocks experience declines of this magnitude, we know they become more attractive over the long-run—but that doesn’t mean they can’t fall further. Perhaps most importantly, we know that it’s critical to maintain a disciplined, long-term approach and to utilize a sound asset allocation framework to guide portfolio decisions.

Please see the attached presentation, providing an update on the recent market backdrop and sharing our perspective, including some thoughts on portfolio strategy (and activity generally being implemented across portfolios).

We’ve shared a couple of additional quotes below from our recent reading.

From Seth Klarman of Baupost Group: “While is it always tempting to try to time the market and wait for the bottom to be reached (as if it would be obvious when it arrived), such a strategy has proven over the years to be deeply flawed. Historically, little volume transacts at the bottom or on the way back up and competition from other buyers will be much greater when the markets settle down and the economy begins to recover. Moreover, the price recovery from the bottom can be very swift. Therefore, an investor should put money to work amidst the throes of a bear market, appreciating that things will likely get worse before they get better.”

From Ben Inker of GMO: “While there will be a severe short-term economic toll (whether it is officially a recession will depend on the length of the economic shutdown, which is unclear at the moment) resulting from COVID-19, we do not believe it will have an enduring impact on the fair value of global equity capital. The fair value of equity markets has been remarkably stable historically; the only events in our experience to truly impair it have been major wars, the Great Depression, and, for global banks, the 2008-2009 Global Financial Crisis (GFC). Most recessions, even deep ones, do not leave a lasting mark on the economy or the financial markets, nor have previous global pandemics.”

Volatility continues.  Stocks and other risk asset classes fell sharply on Monday as a price war for oil and the ongoing coronavirus fallout rattled financial markets.  Stock trading was briefly halted for the first time since 1997 after a tumultuous selloff triggered an automatic curb on trading.  Oil prices recorded their biggest one-day decline since the first Gulf War in 1991 after Saudi Arabian state oil giant Aramco cut prices as part of an aggressive campaign to snatch some of Russia’s market share.  Interestingly, Monday also marked the 11^th anniversary of the closing low of the S&P 500 Index during the Global Financial Crisis—or the start of the longest running stock bull-market in history.

After Tuesday’s almost 5% gain, the broad global equity market (MSCI All Country World Index) is about -15% below the all-time high from less than 20 days ago and down about -12% on a year-to-date basis.  “Safe haven” demand has driven down bond yields, resulting in positive returns from investment grade fixed income.  At this point, the 10-year Treasury note yields less than 0.75%.  Financial markets are clearly pricing in the increased odds of an economic recession.            

Obviously the coronavirus outbreak has caused a lot of uncertainty, and we’ve reached out over the last few weeks to share some perspective (see attached).  Although it goes along with investing, we acknowledge that experiencing volatility is uncomfortable.  From a long-term perspective, history suggests that it’s best to generally hold the course and remain invested to avoid missing the market’s eventual upturn.  Particularly during times like these, we rely on a thoughtfully-constructed asset allocation strategy—each portfolio has one based on objectives and risk tolerance, and typically includes a mix of both defensive and growth-oriented assets.  Importantly, it’s the asset allocation strategy that provides a framework for making rebalancing decisions and tactical portfolio adjustments.

From a tactical perspective, over the last couple of years we’ve maintained a slight defensive tilt in portfolio positioning with an underweight to equities (US stocks in particular) on valuations.  As a result, we actively rebalanced portfolios throughout 2019 by trimming equity positions.  Although stock prices are now lower and valuations somewhat improved, we don’t think equities have become cheap enough to become aggressive buyers or to move to an overweight position.  However, we do believe the recent market backdrop has presented some opportunities to take action in portfolio strategy. 

• First, the sharp decline in bond yields has resulted in strong performance from investment grade fixed income securities.  And given the now reduced pick-up in yield relative to cash, we are moving forward with trimming positions (by about 2-4% across most portfolios) and taking some gains from high quality bond allocations. 

• Given the recent weakness in risk assets, portfolios are now generally below our tactical target weights to equities.  Therefore, we also plan to start gradually adding back exposure (by about 1.5%-2% across most portfolios).  In order to help fund these purchases and raise additional “dry powder,” we recently exited the small allocation to bank loans.

• Finally, while most portfolios still have embedded unrealized gains, we are opportunistically looking through positions within each portfolio to harvest tax losses (while simultaneously purchasing similar positions to maintain targeted exposures).

Please don’t hesitate to contact us with questions or if you’d like to further discuss.