So far this year, investors have had a rat race, with Russia’s invasion of Ukraine, the ongoing pandemic, supply chain shortages, rising inflation and interest rates. of interest that shook the markets.
The Dow and S&P 500 indexes – the main market benchmarks – continue to retreat from their highs at the start of the year, plunging into bearish territory as recession fears grow.
Wealthy individuals, by logic, should have more resources than less wealthy individuals to deal with this type of economic uncertainty and market volatility.
But those who are classified as having high net worth, with at least $1 million in liquid assets, often face a more complex balance sheet than retail investors who are limited to just a few asset classes.
The Hartford Business Journal recently spoke with four seasoned local wealth management experts about the strategies their firms are adopting for high net worth clients to keep their portfolios resilient during turbulent times.
Here’s what they had to say:
Director of Wealth Planning
Bradley, Foster & Sargent, Hartford
Current market view: “The war in Ukraine and the pandemic, which is ongoing, are big things, but our big question is what the Federal Reserve is doing to fight inflation.”
Concerns for wealthy people“The questions we get are whether we are at rock bottom and whether there is a need to change their investment strategy.”
Investment strategy: The core strategy is made up of individual stocks, high-quality, blue-chip stocks. “We don’t use mutual funds or exchange-traded funds a lot for our clients because we like being able to create custom portfolios. At the end of 2021, the rebalancing included a reduction in stocks to achieve long-term neutral objectives.
Actions to enter“High-quality growth companies like Adobe and Amazon, with excellent business models, which historically trade at high valuation multiples, are returning to reasonable levels.”
Stocks in the consumer staples and defense sectors have also performed very well year-to-date, he said, although that raises a red flag. “It is now almost too late to enter these sectors as the market has appreciated their safety and security.”
Actions to avoid: “Names like Netflix and Disney who have benefited from people staying at home but more because things have reopened.”
Fixed Income Considerations: The company sees bonds as the “safety piece” of the portfolio. Short-term US Treasuries, two to three years, are a preference, although he notes that “bonds yielding 2.5%, with 7% inflation in real terms, are still a losing proposition.” .
Crypto position: The company does not exchange crypto for its customers. “The price action and volatility in the crypto has been mind-boggling, making it difficult to get a valuation, and that, along with other factors, makes it uninvestable in my opinion.”
Connecticut Wealth Management LLC, Farmington
Concerns for wealthy people“It’s human nature for clients to want to act when the market goes down. We almost always recommend skipping it because taking action on the investment side is usually the worst decision in a market like this.
Investment strategy: The company takes a long-term investment approach through exposures to broad asset classes that bring growth to investors, and has decided to reduce equity allocations at the end of the year last.
“Since January, we haven’t made any tactical moves in the investment portfolios. Our clients tend to be more conservative and don’t need to take a ton of risk.
Actions to enter: The company only invests in mutual funds and exchange-traded funds, not individual stocks, to gain broad exposure to asset classes at the lowest possible costs, she said . But when it comes to the sector, “the big growth stocks are on sale right now.”
Investments to avoid“We don’t have a position dedicated to commodities. When you look at the data, commodities do well in inflationary environments, but that doesn’t last.
Inflation hedges“We are generally not too fancy and hedge portfolios against inflation. In general, we believe that equities are the best hedge against inflation.
Alternative Asset Strategies: For qualified buyers, clients with over $5 million in investable assets, a venture capital allocation is recommended.
Crypto position: “Crypto does not fit our main long-term strategies due to its speculative nature. As the products develop, we may be open to recommendation. We have clients who speculate in crypto on their own and we have in-house experts who can advise them.
Wilmington Trust Investment Advisors, the wealth management division of M&T Bank, with offices in Guilford and Norwalk
Current market view“The major problem facing the economy is inflation, the growth problem is a by-product of inflation and we believe demand will correct itself.
“We expect that to be the trend over the next two calendar quarters, inflation should come down and with that outcome we should still have enough growth in the economy to be able to avoid a recession. But we expect until the market falls further.
Concerns for wealthy individuals“They’re asking if we’re going into a recession and if they should take money out of the market and put it in cash.”
Investment strategy: Clients’ portfolios are personalized according to asset classes. “We were overweight equities until March of this year. We think equities are getting to a point where they are reasonably priced given the economic outlook, but they are not cheap. We are neutral on equities, underweight on bonds and overweight on cash.
Actions to enter“We continue to look at energy and healthcare, which are areas that are still not trading at crazy levels. And we think some of the major tech companies like Microsoft are really fundamental to the foundation in all segments of the economy, and other big companies in software, whether it’s cloud or security , are going to do really well in the long run.
Actions to avoid“We are cutting consumer stocks, both core and discretionary, stocks like Apple, Best Buy, other high-end retail brands, including apparel companies. Netflix, Meta Platforms and others social media companies that I would stay away from.
Fixed Income Considerations“We think there’s a good case for putting money back to work in bonds, but we’re patient because the best argument might be to put money back to work in stocks. We are shifting some clients to shorter-term bonds at this time.
Crypto position“We believe crypto is here to stay and we have explored, but it is very difficult to structure cryptocurrency exposure in a profitable way. We are working on different approaches to start including this in our portfolios.
Gray Ledge Advisors, part of GSB Wealth Management, Guilford
Current market view“Our view is that the equity market is overvalued. Anything short of fabulous news from a company trading at 50-60 times earnings, as many big names are, is going to drive this stock down.
Concerns for wealthy individuals“One in three of our clients is over 70 and receives distributions, so volatility is a sensitive topic for them. Our clients are interested in heritage preservation, not heritage creation.
“Their questions are ‘have I had enough, am I still on track, do I need to make any changes?’ For the last question, most of the time the answer is no.
“Our diversified portfolios aren’t that much down relative to the stock market and certainly aren’t generating returns in panic territory. We are making small changes, but nothing drastic. I think a lot of those customers actually have bigger cash allocations than they should.
Investment strategy“We have always been a traditional US large-cap value store, focused on picking individual stocks for high-net-worth clients. In our clients’ portfolios, we don’t try to chase total returns or yields.
“Our core strategy has always been long-term investments in large companies, with good balance sheets, good income potential that bring in money and increase dividends. Over the past nine months or so, we have slowly moved away from well-known names.
Actions to enter: Energy, consumer staples and defense sectors.
Actions to avoid: Technology, “really too expensive”.