This weeks' ATW takes an overall look at the markets and finds them to be overpriced overall. This is a recurrent theme of ATW and highlights the need to recognize why our client portfolios look the way they do. Specifically, we allocate client money to asset classes designed to weather downturns in equity markets. This includes fixedincome funds holding government and corporate bonds. The former now have a short duration to maturity and are less susceptible to the other market menace -rising interest rates. The latter are primarily investment grade, ensuring our clients hold corporate bonds with the highest credit quality.
Another hedge against downside risk comes from our use of equity funds with a DeepDiscount Value investment style. This means that the fund managers invest in stocks with lower price-earnings multiples. In simple terms, buying stocks that are underpriced based on their actual value at the time of purchase. Paying less for stocks at the beginning lowers overall downside, as these companies have less room to fall when equity markets turn.
And make no mistake about it, we are due for a fall sometime soon. Stocks are pricy and we haven't seen a meaning correction in 8 years. But we're ready for it, as are the Wealth Management companies we invest through. Your fund managers are seasoned money managers. And several, notably the Ivy Foreign Equity fund, have a sizeable cash position (about 30% of the total fund) in CASH. As the saying goes, 'keep your gun powder dry'. When stocks correct, they will begin firing away, buying on your behalf when the market goes on sale. Eyes on the horizon, you're in good hands!