Newsletter
Dear Client,
As the second half of 2021 begins, many of the investing themes from 2020 and early 2021 remain in place. Despite a sharp rise in interest rates earlier in the year, they remain historically low, equities continue to rally, and the Federal Reserve remains extremely accommodative. In the near term, we are not expecting any major shifts in policy thereby keeping the markets on firm footing. Inflation fears and a possible shift to tighter monetary policy from the Fed may be potential hurdles for the markets over the next 3 to 6 months. Having said that, we currently favor equities, preferred stock, and short duration bonds.
In terms of our allocation in equities, we have held most of the positions acquired during the pandemic selloff. We recently sold a few cyclical names while maintaining our broader holdings in the technology, staples, industrials, financials, and healthcare sectors. If Central Banks continue to hold interest rates low, which is looking increasingly likely, high quality dividend payers may assume a larger portion of the income driven investor’s portfolio, with many stocks boasting yields in the 2.5%-4% range. We continue to hold technology and growth stocks and would look to add to that sector on any meaningful pull backs.
In past years, fixed income was generally a large part of our commentary. At this juncture, the absolute yields in the fixed income markets are not compelling versus equities. Previously we had been active buyers of Mortgage-Backed Securities and high-grade corporate bonds. We still hold some of the aforementioned fixed income asset classes but have not been adding to those sectors. Many of our corporate bond positions have matured and we have been selling many of the smaller MBS positions. If interest rates make a meaningful move higher, we would look to add more fixed income if and when the yield levels appear attractive versus equities. As mentioned earlier, we continue to deploy new cash, dividends and interest payments into common stocks, preferred stocks and short duration bond funds.
Going forward we are cognizant of the strong performance of equities over the last several years. Corrections do occur, and we will not be surprised by the next one when it does happen. Overall, we believe that our asset allocation is conservative and can withstand substantial downside to the overall markets. It is also worth noting that the global central banks are ready and willing to help backstop any material sell offs when they happen. This was not always the case in the past but it does seem that the world of investing has changed and will continue to stay that way.
As always, we hope you and your families stay well and we thank you for your continued support.
Regards,
Edge Wealth Management