Update to Our Portfolio Positioning
June 15, 2022
Over the coming days and weeks you will start to see our portfolio positioning shift slightly. Consistent with the article that we penned on 5/13/22, Are we There Yet, we have begun the gradual tilt to becoming slightly more aggressive as the S&P 500 has reached our targeted 3700 level. Our operating philosophy at Westshore Wealth has consistently been to compose our portfolios with plenty of “shock absorbers” and uncorrelated assets so as to minimize volatility. While we recognize that encountering a downdraft in your portfolio assets is always unsettling, this approach has worked. While the S&P 500 is down almost 22.5% from its peak in January, most of our portfolios have experienced losses that are less than half as large.
With all that said, we decided to begin Phase 1 of our portfolio re-orientation this week. The first shift that you will see is a move to sell down our holdings of JP Morgan Hedged Equity and replace that with the S&P 500 index ETF. The JP Morgan vehicle was very effective at limiting downside through its usage of put options (essentially insurance policies that protect portfolio values). That however, comes at a cost as it also limits upside participation. The S&P 500 index ETF, by contrast, will give us much more unencumbered upside. Before you worry that we are taking undue risk, please understand that we still have a fair amount of shock absorbers in the portfolio. The changes that we are making are evolutionary, not revolutionary. As we get more clarity on the market’s direction, you can expect to see us continue this measured, offensive drift. The other changes that you should expect to see in the coming weeks include the following. Given the market’s retrenchment, many of our positions now embed a capital loss. We intend to start recognizing losses on those securities where we can find a suitable proxy. Those tax losses can be used to reduce your tax burden in future periods. Finally, you can also expect some shifts in our capital preservation basket. Some of this will be done to capture capital losses as just mentioned, but we also will be making a fundamental shift as well. Given our aforementioned fear of Federal Reserve rate hikes, we had situated our fixed income assets in short dated maturities and floating rate securities. With the bond market selloff that we have experienced, many of the categories that we have purposely avoided, now appear attractive. Specifically, longer dated maturities in corporate and municipal bonds are now quite compelling.
We will keep you appraised of our continuing quest to deliver compelling, yet stable, longer term returns as this cycle evolves. If you wish to discuss any of these moves in greater detail, please don’t hesitate to reach out.