by Kevin Slater, CEO, Lead Advisor, CFP®
Markets were very optimistic in Q1 with hopes for a drop in interest rates and a soft landing for the economy. With the sole exception of US bonds, all the major liquid asset classes were positive. Large Cap US stock continued the dominance it exhibited for most of the past decade while bonds continued their unfortunate spot at the bottom of the table.
Key:
S&P 500 = Large Cap US Stocks
EAFE = International Developed Market Stocks (excluding US)
Small Cap = Small Cap US Stocks
EM = Emerging Market Stocks
Commod. = Commodities
Fixed Income = US Bonds
Balanced = 40% US Large/5% US Small /10% Intl/5% EM/35% US Bonds/5% Commodities
Early in Q2 however, inflation has again proven stubborn, and not surprisingly, the markets have reversed course. Most markets are still ahead for the year.
In SVA portfolios, we use index funds for most equity positions, so equity portions of portfolios will track their index somewhat closely. On the fixed income side, we are invested with shorter duration than the index which has proven beneficial to returns.
We are considering a minor change to our portfolios, not of the market timing sort. Within our greater US large cap allocation, we are exploring investment in an index based on company profitability, debt exposure, and free cash flow. If there is a recession or a significant correction, these indicators may allow for outperformance against the broader index.