This week we’ll discuss the recent changes we made to the public equity holdings in portfolios, but first a quick review of the wild month of April.
From April 1st to today, May 2nd, the S&P 500 is actually up 1.7%. Let that sink in. The US Large Cap Stock Index is now down just 3.7% year-to-date. During the first week of April, investors were in full panic mode, selling at the fastest pace since the Covid crash. The S&P 500 fell from 5,600 to 4,800 by the morning of April 7th. From that opening tick to today, the S&P 500 is up 17.5%.
Over the same period, the US Dollar fell an additional 4% and is now down almost 9% from its January highs. US 10 Year Treasury Bond yields increased from 4.2% to 4.3% in April as well.
International Developed Market Stocks rose 5.3% in April after falling by nearly 11% in the first week of the month. Since their April 7th low, IDM Stocks have increased by 19%.
Needless to say, volatility as measured by the VIX Index has stayed above 20% for the entire month, briefly touching 60% on April 7th.
We don’t think this period of elevated volatility and uncertainty is over just yet. While the last few weeks have seen a steady march higher, don’t be surprised if we again see a surge of selling sometime in May.
Given the elevated level of volatility, the uncertainty surrounding tariffs and trade and the decline in the US Dollar, we made a few shifts to portfolios last week. Today, we’ll briefly highlight a few of these changes.
Added Private Equity
For clients who are Accredited Investors, we reduced our exposure to public stocks and began adding private equity funds to accounts. Depending on the strategy, this allocation will be between 10% to 15% of portfolio value when completed.
We explained our reasoning for this investment in our March 7th Weekly Thoughts Note. In order to fund this investment, we had to restructure our existing public stock positions.
Reduced International Stock Overweight
Over the last year we’ve been overweight International stocks through a combination of International Developed Markets and Emerging Markets. This past week we eliminated our investment in Emerging Market stocks.
This investment (VWO) had outperformed the US Stock Market by over 5% year-to-date. We felt that the ongoing trade uncertainty would be a long-term issue for these markets and so decided to take the win and move on.
We continue to have a significant investment to International Developed Market Stocks which reached their all-time highs today and are now up 12.6% this year vs. the S&P 500 down 3.7%.
Reduced US Sector Investments
In addition to selling out of VWO, we also eliminated a few sector specific investments in the US.
We had held an investment in the Mega Cap US Banks for some time. Last year, this investment (KBWB) returned nearly 40%. However, given the current economic dynamic, we felt it best to eliminate this Banking focused investment.
We also sold out of our Healthcare Sector investment in XLV. It was doing much better than the broad US Market up 1% year-to-date, but we believe that Healthcare will now become a focus of the administration going forward, so decided to take our relative outperformance and sell.
Finally, we sold our investment in US Small Cap Value Stocks. This investment was doing very poorly and given the economic outlook and level of uncertainty, we felt it best to realize the losses on this investment and shift funds to investments with a better outlook.
Overall, we are still underweight equity exposure across strategies by about 10% of benchmark weight. These funds have been redirected to Private Credit holdings which have been much more stable and generated much higher returns than stocks over the last year. We continue to think that Private Credit is more attractive than stocks at this point.
We also have a significant allocation to public bonds in portfolios. The US Aggregate Bond Market has returned about 3% this year. We think of these bonds as “dry powder” for future purchases of more attractively priced assets.
If stocks continue their volatility over the coming months, we may shift funds from public bonds to public stocks depending on valuation and expected returns.
We hope this note helps you understand the changes that were made in portfolios last week. If you have any questions, please don’t hesitate to reach out.
