January 2021 Portfolio Update
We wanted to take a few minutes to loop you in on the rebalance we did earlier this week and some adjustments we made at the same time. A lot has happened over the past year. We saw the beginning and middle of a global pandemic, along with the markets’ retreat and recovery along the way. Not only has Zoom become a household name, but many parents took up second careers as homeschool teachers. And most recently, we ushered in a new administration. With changes as large and impactful as these, it was prudent and timely to rebalance the portfolios again and make some proactive adjustments.
Before we get into the changes, we wanted to address the topic of trading frequency. We understand there is still a stigma amongst investors about an advisor’s motivation for making trades in accounts (and for a good reason). Much of the industry still works on a commission basis or has revenue-sharing arrangements in place, creating financial incentives for an “advisor” to trade a client’s account more frequently. We want to be very clear that as an independent, fee-based advisor, we are never compensated for placing trades in our clients’ accounts. As fiduciaries, our only motivation for making changes in our clients’ accounts is doing what we feel is in our clients’ best interests and managing their accounts with the same prudence and care as we would do for ourselves and our families. For this reason, we often make the same adjustments in our own accounts while making changes for clients (or shortly thereafter to avoid potential “frontrunning” concerns). While much of the industry still receives direct and/or indirect compensation for placing trades, we do not.
Okay, so what were some of these adjustments that we made?
GameStop, AMC, Blackberry, and Bitcoin
Not a chance.
Environmental, Social, Governance (ESG) Funds
ESG investing is something that we started incorporating last year after the CEO of the largest investment management company (BlackRock) publicly called out other CEO’s to focus more on sustainability measures. He stated that the company would be more inclined to cast its votes accordingly at shareholder/board meetings. With pressure from top fund managers and now more pressure from the Biden administration, coupled with our belief that companies who do business the right way, treat employees properly, and remain conscious of their impact on the environment will continue to see higher investments and excel in the future.
As such, we’ve continued our shift from broad indexes into their ESG counterparts, both domestically and overseas.
Inflation-Protected Bonds
The concern of higher inflation is something that you may have heard in the news lately and will most likely continue. Higher inflation is often the byproduct of heavy government stimulus, which we saw last year and is expected to continue this year. The pandemic also caused significant disruptions to supply chains, increasing many everyday products’ prices, which may become the new normal. One of the downfalls of most bonds is that they don’t adjust for inflation. While this hasn’t been a significant concern over the past two decades, we see the path ahead being a bit different. Treasury Inflation-Protected Securities (TIPS) addresses this concern by adjusting the bonds’ face value based on inflation.
We’ve shifted a portion of those funds into TIPS for clients with larger allocations to bonds to help protect their purchasing power.
Low-Cost, Active Government Bond Manager
Active management in the government bond space can be very beneficial to you because of the various options a bond fund manager has at their disposal, such as buying and selling previously-issued bonds, which help reduce risk and increase returns. We have finally found a fund manager that meets all of our investment criteria to be considered for our portfolios (low cost, seasoned, risk-conscious, and a solid track record).
Across most of our clients’ portfolios, we have shifted a portion of the government bond index into this active fund.
Technology
There is little doubt that technology will continue to shape us in ways that we can hardly imagine. Early last year, we embraced this fact within our portfolio by adding a tech fund focused on innovation and disruptive technology. That move was very timely, and our clients’ portfolios reaped the benefits of it. With the increased shift to automation, mobile computing, virtual work environments, electric vehicles, etc., we do not see this as a fad or bubble and expect to see continued growth in this space over the years to come.
Barring those situations that would have triggered significant short-term capital gains, we added another fund to clients’ portfolios that expands on the fund we added last year while also focusing on different tech space areas (including blockchain).
Shift Back to Risk Neutral
At the beginning of last year, we took some risk off the table by underweighting equities and reallocating those funds to market alternatives and/or protective options. While we didn’t know what was about to come, there were enough signs for us to move to a defensive position at that time. With the ongoing pandemic and an upcoming election, we felt the most prudent move was to maintain that defensive position until a lot of the uncertainty was behind us. Remember, Wall Street doesn’t like uncertainty, which is reflected by large swings and increased volatility.
While there will always be unknowns and unexpected surprises, we feel that the bulk of that is behind us and have shifted back to our target allocations (i.e., risk-neutral). Note that this shift is a tactical decision that we review and monitor on an ongoing basis.
That’s it for now. As always, feel free to give us a call with any questions you have or anything that we can help with, and thank you to those of you who have referred your friends/family to use. We appreciate the trust and confidence you’ve placed in us and will continue to do everything we can to help you and those you care about traverse these uncertain times with prudence and care.
Clear Creek Financial Management, LLC dba Traverse Planning is a Registered Investment Adviser. This content is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Clear Creek Financial Management, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Clear Creek Financial Management, LLC unless a service agreement is in place.
