Investment Commentary & Q2 Rebalance

Written by Canty Financial - Published on April 19, 2023

In light of the current market conditions and heightened uncertainty, our investment strategy aims to enhance the overall quality and resilience of the portfolio. We are taking steps to reduce net exposure to stocks and credit, reflecting our cautious stance. One notable move is our continued rotation out of names with significant active risk, including the sale of US small caps and momentum-oriented stocks.

Furthermore, we are tilting the portfolio towards growth-oriented assets and away from value names. This involves adding to US technology stocks and growth-factor international developed market stocks. Our rationale for this adjustment is driven by our assessment of the recent events in the banking sector.

The collapse of two sizable US regional banks and the subsequent response by the FDIC and Treasury have demonstrated the practical consequences of rapid financial tightening. The potential ramifications, such as higher costs of capital, deposit leakage, and increased need for overcollateralization, could lead to tighter lending conditions and real financial tightening. This development, combined with the ongoing Fed rate increases, presents downside risks to the economy.

We believe that the market has not fully priced in the risks associated with contracting bank lending conditions and their impact on the broader economy. As a result, we are repositioning portfolios to adopt a more defensive stance. This includes reducing stock allocations, reducing sensitivity to volatility, and maintaining a long-duration bias. Our aim is to provide potential outperformance during periods of market stress.

In summary, our investment approach acknowledges the elevated uncertainty and potential downside risks in the current environment. By adjusting our portfolio to reflect these conditions, we seek to navigate the evolving market landscape and position ourselves for long-term success.

Please call us at 518-885-3230 or 239-435-0090 to let us know if you have questions.  We welcome clients who are interested in financial planning, opening investment accounts, or adding to existing investment accounts.

Bill Canty, CFP®, CPA

Ed Canty, CFP®, Investment Advisor

Joe Canty, Investment Advisor

Maureen Walsh, EA, Tax Advisor

Tina Alteri, CPA, Tax Advisor

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