The Pacific Financial Group hosted a virtual Asset Allocation Committee meeting on Tuesday, July 13th, featuring a group of our partners and strategists. Each shared their viewpoints and outlook on the market and their strategies, and their outlooks on inflation. Here is a summary of each strategist’s comments.
Stanley Moy – Multi-Asset Investment Product Manager
Kristin Himsel – Vice President Relationship Manager, Investment Resources
Eric Mueller – Director, Model Portfolio Strategist
Ryan McMahon – Senior Vice President, Account Manager
Kyan Nafissi – Investment Director
Bob Meeder – President and Chief Executive Officer
Joe Bell – Co-Chief Investment Officer
Sharika Cabrera – Executive Director, Investment Specialist
Stephen Kolano – Chief Investment Officer
Matthew Hamilton – Vice President, Model Portfolios
- Underlying funds had positive absolute returns, though the models trailed the benchmark.
- In equities, Consumer Discretionary exposure hurt relative performance as Growth led.
- Portfolio took profits in Energy and Real Estate.
- Opportunities in tech and industrials.
- Favorable to Europe, EM, and Canada.
- High Yield and Inflation-linked fixed income was positive, but outweighed by short duration Treasuries.
- Added American Funds Strategic Bond during the quarter.
- No flip from Value to Growth. Instead a balance between both: financial, energy, travel vs work-from-home, online retail, and online payments.
- Equity model lagged benchmark for the quarter. Still outperforming YTD and 1 year.
- Leans small cap and Europe. Overall geography is neutral, 70/30 US/Foreign.
- Inflation to persist for 6-9 months.
- Favor Cyclical, Small, Europe equities. Underweight fixed income vs equity, potentially adding commodities.
- Model uses core bond to hedge deflation + Commodities/Real Estate to hedge inflation.
- Has worked well vs benchmark. Underweight in core bonds and overweight in real returns have driven out performance.
- No change in outlook: inflation is transitory, but will get worse before it gets better. Expectation of rising rates end of the year through first half of 2022.
- Labor, supply, and price effects should moderate going forward.
- Model is overweight materials, underweight staples/communication.
- Currently positioned for mid-cycle, which should continue.
- Economic growth to peak in 2nd quarter, then normalize. Base view is for recovery to continue, with spending power from household savings substituting for a stimulus roll-off.
- Inflation should be transitory, but rising wages should vie with falling goods/used car prices.
- Model trades tactically. Took some profits in April and May.
- Currently ‘on offense’, with focus on U.S. Large, U.S. Small, and REITs.
- Economic output should rise back to pre-pandemic levels by the end of Q3.
- Equities are still positioned for a continued reopening. Europe is preferred within international, tailwinds from vaccine distribution and fiscal support. Europe also represents additional cyclical exposure compared to the U.S.
- Fixed income in the model is underweight duration. Inflation risks remain, but should subside in the second half of 2021. High Yield is a potential opportunity, as downside could be contained.
- Moderate model underperformed for the quarter, due to active allocation decisions. One year performance remains excellent.
- Model is fully invested in equities. Internal indicators show Short-term and Risk as strongly positive, and Long-term is neutral. Intermediate-term is contrarian and negative, due to strong investor sentiment.
- Technical indicators show some divergence, which is concerning.
- Geographic positioning is 84% US and 16% International. Slight tilt Developed vs EM. Overall momentum favors U.S.
- Overweight to High Yield was beneficial. They are underweight duration.
- Inflation is at an inflection point, between pandemic policy and growth.
- Recovery is mid-cycle. Output gap and supply chain disruptions remain.
- Inflation tends to lag growth, so it’s expected to peak in coming months, then normalize.
- Federal Reserve has done a good job to alleviate concerns of rate hikes while also committing to keeping long term inflation in check.
- Treasury rates should be range bound, 1.5% to 2.0% through the end of the year.
- Credit spreads are unlikely to tighten further.
- Bottom up fixed income selection has some opportunity in non-agency mortgages and emerging market debt.
- During the quarter, they reduced Mortgage Opportunities as Agency valuations look rich.
- Core fixed income had been underweight at the beginning of the year, and is now neutral.
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Disclosure: Advisory services provided by The Pacific Financial Group, Inc. (“TPFG”) a Registered Investment Adviser. The information is for informational purposes only and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Past performance is not a guarantee future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss. Investors should review all offering documents and disclosures and should consult their tax, legal or financial professional before investing. All information is believed to be accurate but has not been independently verified and TPFG makes no warranties as to the accuracy of the information or any representations made or implied.
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