Portfolio Rebalancing: June 9, 2014

A note to our clients regarding recent portfolio rebalance (June 9, 2014)

With many global equity markets at or approaching pre-recession highs, we are taking this opportunity to rebalance client portfolios. For most clients, we are specifically reducing exposure to Emerging Markets stocks (EM). Shares of EM Stocks, representing countries like Russia and China, came under significant pressure earlier this year, with some EM indices falling almost 10%.  As pressures have eased in some of these more politically charged areas, EM stock prices have climbed back up, and in fact are at year-to-date positive returns that just about equal those of U.S. stock prices.

Stocks in general still remain reasonably valued, and while we expect future (3 to 5 year) returns to exceed those of bonds and cash, we also recognize that volatility has been exceedingly low for a long time. Historically, EM stocks have been more volatile than their U.S. counterparts. Our concern is that when volatility does return to U.S. markets, EM stocks may be even more suspect to downturns.  Being mindful of the saying, “when the U.S. sneezes, the world catches a cold”, we think it makes sense to reduce exposure to EM stocks now that they have recovered from the swoon experienced earlier in the year. A portion of the proceeds will be used to slightly increase our holding in the LJM Preservation & Growth Fund, an alternative fund that is designed to target low correlation to the stock market.

Thank you for your continued confidence.  We appreciate the opportunity to serve your wealth management needs, and we welcome any questions you have about this communication or your portfolio.


Smith & Howard Wealth Management

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