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Recent Trades and Defensive Positioning

Posted: Ashley Cornner-Patel

In this WJ Notes, we discuss recent trades and current portfolio positioning. As we have discussed many times in the past, we are in a low return environment. Over the past five years, of the numerous asset classes we invest in, only one achieved a return greater than 3% per year. The asset class was US Stocks, up about 9% per year over the five-year period. Unfortunately, low interest rates and overvalued stock markets point to continued muted returns. This is especially true of US stocks which are about as expensive as they have ever been. In addition, returns over the last 12 months have been negative for all the stock asset classes we follow. As a result, we are positioned defensively, with greater than 20% invested in alternatives. The alternatives will help protect the portfolio when stocks sell off as they did in December of last year. On the other hand, they will be a drag on portfolios when markets rally as they have over the past three weeks. We are willing to accept this deviation from our benchmark to protect portfolios on the downside, but we thought it was important to explain the reasoning behind it. We will continue to keep you informed about portfolio positioning through WJ Notes and at our upcoming WJ Luncheon.

Last week we invested portfolio cash into primarily US Treasury bonds. US Treasury bonds have shown decent strength recently as interest rates fell during the fourth quarter of last year. Treasuries provide an offset to falling markets as investors flee to safety. Like the previous discussion, they are a drag on portfolios when markets rally. Keep in mind that for our balanced portfolios they only comprise a portion of the overall bond allocation. If you have questions regarding your portfolio or financial plan, please contact us. We appreciate the confidence you place in us in assisting you to reach your financial goals.

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