by Scott Ronalds
From our Quarterly Report:
The challenge of investing through a cycle is that when a stage goes on for a long time, as the current bull run has (nine and a half years), there’s a risk that portfolios ‘creep’ away from their original plan. They become less diversified due to an increased focus on the dominant trends of the day. In the later stages, portfolios get more aggressive, holding more equities including speculative and thematic stocks. On the fixed income side, investors own fewer high-quality bonds as the search for higher yields takes them to riskier parts of the market.
Only history will tell us what stage we’re in now, but as I’ve said for a while, it feels like we’re later in the up cycle. Corporate profit margins are in nose bleed territory, valuations on most assets are high, debt loads are rising, and the market is being pushed higher by a select group of stocks while other sectors are being left for dead. As for investors, we’re being asked less about downside risk and more about whether their asset mix is aggressive enough. And as for speculation, I now find myself in the minority at a party when I don’t have an amazing story about a cannabis stock.
At Steadyhand, we’ve participated in the good markets over the last few years, but it’s not a stage in the cycle when we expect to be at the top of the charts. We have significant exposure to stocks in our balanced portfolios (including the Founders Fund), but the level has been reduced and few if any holdings could be classified as speculative. On the fixed income side, we’ve dialed down the credit risk, holding more government bonds than corporates (the opposite of our usual mix).
Read Tom's full brief and the rest of our Report here.
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