Colony Market Update

June 23, 2020

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.