As proponents of investing for the long-term, Wolf Group Capital Advisors implements a strategic framework within our financial planning and investment management process that we believe increases the possibilities for positive outcomes. Nevertheless, we understand that client situations and market dynamics are ever-evolving and that there is no one-size-fits-all solution. As a result, we incorporate tactical approaches as part of the larger, long-term picture. Below we will share current market trends that wealth managers and investors are closely monitoring and how these may affect the way investors tactically position themselves short- to medium-term.
First, we will dive into overall bond yields. With yields coming off historical lows, conversations around fixed income allocations have increased. This current fixed income environment has even prompted public pension and investment funds, both of which have participated in a multidecade trend of shrinking fixed income assets in favor of alternative investments, to take a fresh look at publicly traded debt as highlighted in a recent WSJ article. This article notes how Alaska’s state fund investment chief wants to cancel a plan that would reduce bonds and add private equity. Others like the Los Angeles County Employees Retirement Association, which oversees over $70 billion, currently aims to keep their bond allocation to less than 20% but admits that “discussions this year about how to allocate assets could get ‘very interesting,’ investment chief Jonathan Grabel told the board, thanks to the sharp rise over the past year in short-term Treasury yields. ‘If we’re trying to get 7% and you can earn 5% in a two-year note, that really changes everything’.” The following chart illustrates the recent shift in yields and how the shorter-dated bond yields have increased to a higher degree than the longer-dated ones.Next, with yields now more attractive, especially at the shorter end of the yield curve, we have seen increased interest in short-term bonds and money market funds from investors, who are searching for higher yielding options than those offered at their retail bank or credit union. The chart below shows cash levels in money market funds since the beginning of 2022As noted in a recent Bloomberg article from April 5, 2023, “besides the exit from banks amid fears of further runs in the wake of the demise of Silicon Valley Bank and two other regional banks, investors have pulled cash from deposit accounts as increases in those rates have trailed yields for money funds, which have better adjusted to the Federal Reserve’s most aggressive hiking cycle since the Volcker era.” WGCA’s CIO Charles Verruggio provides more on this topic in his March 2023 Market Commentary.
In conclusion, whether large pension funds seeking to meet their yearly return objectives or individual investors looking for higher yields for their cash balances, both investor groups are tactically positioning themselves based on current market conditions. As we move forward, investors will continue to adjust based on evolving trends and expectations for items such as the current hiking cycle from the Federal Reserve. At Wolf Group Capital Advisors, we will also continue to monitor the investment landscape, implement strategic solutions, and tactically adapt. As author Garrison Wynn puts it: “Action and adaptability create opportunity.”
Associate Portfolio Manager
About Wolf Group Capital Advisors
At Wolf Group Capital Advisors, a comprehensive wealth management firm and Registered Investment Advisor (RIA) based in Washington D.C. metropolitan area, nothing is more important than the fiduciary responsibility we have in managing your wealth. Taking the utmost care, we focus on providing advice tailored to your specific circumstances. With more than two decades advising U.S. expatriates and non-US citizens employed by international organizations, we are uniquely qualified in investment strategies addressing global issues. Empathy and curiosity—combined with our experience in life planning and investment management—enable you to explore a wider set of possibilities that can lead to a fulfilling life you’ve worked hard to attain.
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
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