We hope everyone remains healthy throughout this difficult time. We wanted to review our three discretionary portfolio strategies. We recently made some adjustments to both the Global Balanced Advisor and the Growth Equity Portfolio.
Global Balanced Advisor
On May 6th, we executed a full rebalance of the portfolio. We rebalanced the holdings to their target allocation. We sold 5% in First Eagle Global Fund and added that 5% to T. Rowe Price Capital Appreciation Fund. We sold 5% in Vanguard Total International Stock Index and moved that to cash, bringing our cash allocation up to 10%. This rebalance brought our equity position to approximately 61% in stocks from 67%, with approximately 20% in fixed income.
The reason for rebalancing the Global Balanced Advisor was two-fold. First, our research consensus turned more cautious and favored the U.S. vs international markets. We added to our overweight position to the U.S. and we increased our cash position from 5% to 10%. Adding to the cash position, will serve as a buffer if there is additional weakness in the market and it will also serve as a “bullet in the chamber” if there is an opportunity to buy back in at lower prices. Secondly, for our taxable accounts, this rebalance will create tax losses on positions that were down in value. These tax losses can help offset any gains and potentially lower the tax burden for our clients.
We decided to make this move based on our research consensus. We saw unprecedented volatility in the first quarter with markets moving +/- 10% on some days. We did not feel it was appropriate to try to time any moves while the market was so volatile. At that point, the correct decision was to do nothing.
There were things happening in the accounts that did not show up on the statements. For example, in the T Rowe Price Capital Appreciation Fund, which was 20% of the portfolio and is now 25%, there was a lot of activity. That fund came into the year conservatively positioned with approximately 18% in cash and 20% in bonds at the end of January. As markets sold off, the fund started to add to stocks. Towards the low of the market, that fund had taken cash down to 2% and added to stocks to take advantage of lower prices. As markets recovered, the cash position is back up to around 12% while reducing equity exposure. We are very pleased with the performance of that fund which is one of our core holdings.
First Eagle Global Fund, which was 20% of the portfolio and is now 15%, also had a very active quarter, the most active since Fourth Quarter 2008. The fund was a net buyer of stocks and had also let their gold position float up to 18% of the fund.
Our two fixed income funds DoubleLine Total Return Bond Fund and T. Rowe Price Global Bond Fund are both yielding approximately 4%.
In addition, we have made an appraisal of every holding in our Global Balanced Advisor, to make sure each holding meets the criteria to be included in the portfolio.
Growth Equity Portfolio
We recently sold Starbucks and bought Micron on April 30th. We are very pleased with the positive performance and how the portfolio has performed relative to the S&P 500 Index.
Diversified ETF Portfolio
The ETF portfolio has performed well relative to the World Index. We added a medical device ETF on February 7th. The portfolio has benefitted from our overweight to the U.S. Our two biggest sectors in this portfolio are Technology and Healthcare, the two best performing sectors in the market year to date.
It has been hard to miss the commentary on what the shape of the recovery will be. All kinds of investors and economists have given their take, and no one seems to agree. A “V shaped” recovery is one in which there is a sharp decline and a sharp recovery. Obviously, this would be best-case scenario. A “U shaped” recovery is one that has a more gradual improvement that takes much more time, not unlike the recovery from the 2008 financial crisis. A “W shaped” recovery is one in which we have a sharp contraction, it looks like a recovery is happening, and then it contracts again before it fully recovers. People are also making up new letters and symbols: L shaped, Nike swoosh, square root.
Our opinion is that whatever shape the recovery takes, a recovery is inevitable. It is not our job to make predictions. Our job is to build durable portfolios that are able to meet our client’s goals. It is also important to remember that the stock market is not the economy, especially in the short-term. We have seen that play out in real time as the market has continued to rally in spite of some of the worst economic numbers since the Great Depression. That is something investors are having a hard time wrapping their head around. However, let’s not forget the market went down 35% peak to trough in anticipation of these horrible numbers. The stock market is forward looking and doesn’t have to resemble the reality on the ground in the real economy.
We will continue to monitor our research and will make appropriate changes to our portfolio strategies. We thank you for your trust and confidence in us during this time.
The information contained herein was obtained from sources considered reliable. However, its accuracy or completeness cannot be guaranteed. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
La Ferla Group does not provide legal or tax advice. You must consult with your legal or tax advisor regarding your personal circumstances.
Contact La Ferla Group if you have any questions; if your financial situation, individual needs or investment objectives have changed; or if you would like to impose or change any investment restrictions on your account(s).
La Ferla Group LLC (“La Ferla Group”) is a federally registered investment adviser with its principal place of business in the State of New York. Registration does not imply a certain level of skill or training. This brochure is limited to the dissemination of general information pertaining to its investment advisory and management services. For information pertaining to the registration status of La Ferla Group, please contact La Ferla Group or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).
FOR ADDITIONAL INFORMATION ABOUT LA FERLA GROUP, INCLUDING FEES AND SERVICES, SEND FOR OUR DISCLOSURE BROCHURE AS SET FORTH ON FORM ADV FROM LA FERLA GROUP USING THE CONTACT INFORMATION HEREIN. PLEASE READ THE DISCLOSURE BROCHURE CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Investment Adviser Public Disclosure (www.investor.gov/crs) (CRD# 174933)
This disclosure requirement is intended to provide retail customers with an understanding of a Registrant’s relationship and business practices to allow them to make informed decisions when selecting a Registrant with which to conduct business.
Regis R. Dillon, CFA, CFP®
Chief Investment Officer
