Investing in a Volatile Market
May 9, 2022
Over the last week we’ve seen an uptick in volatility in equity markets. To that point, so far this year we have seen the biggest concurrent fall in stocks and bonds in almost 50 years (the S&P500 is down 17% this year and the aggregate bond index is down 10%). With negative and attention-grabbing headlines widespread at the moment, we wanted to reiterate some key points as well as changes we are making to our portfolio to mitigate risk:
Key points
Staying invested in good quality businesses has historically proven to be the best course of action through uncertainty.
Cash is yielding a negative real return, with inflation in the high single digits.
Attempting to time the market usually results in realized losses and lost gains.
Portfolio changes
Adding exposure to pre-IPO companies not subject to public equity market volatility and simultaneously offering liquidity to employees of private companies.
Focus on quality high dividend companies with defensive characteristics and attractive valuations.
Increasing our allocation to structured yield notes with attractive coupon payments.
Implementing a tax loss harvesting strategy to realize losses where appropriate to reduce your tax bill (the article attached shares further insight).
Allocating to unlisted, private real estate debt secured by physical property.
Finally, we wanted to provide an update on the ‘equity tilt’ portion of our portfolio. We are purchasing an ‘absolute note’ that acts as a hedge against the S&P500 (generates positive returns so long as that in twelve months the issuing bank remains solvent and the S&P500 is not down by more than 25%). We ‘pay’ for that hedge by capping upside on the investment at 8.85% over a 12-month period.
Markets will be focused on CPI leading into Wednesday as April’s numbers are released.
Disclaimer
The information presented should not be considered personalized investment, financial, legal, or tax advice. This notification is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, and are based primarily on assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change. Past performance is not indicative of future performance. Principal value and investment return will fluctuate. There are no implied guarantees or assurances that the target returns will be achieved, or objectives will be met. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report reflect management fees. The values used in this report were obtained from sources believed to be reliable. Performance numbers were calculated by Black Diamond using the data provided by your custodian. Please consult your custodial statements for an official record of value.
The securities involve risks not associated with an investment in ordinary debt securities. Selected Risks Associated with any of these structures include: - Notes are not principal protected and investors can lose some or all their initial principal if the underlying asset falls below the Principal Barrier Level. - Contingent coupon payments. Investors may not receive periodic interest payments if the performance of the underlying asset falls below the Coupon Barrier Level. It is possible that investors will not receive any coupon payments over the life of the Note. - Potential for early redemption and reinvestment risk. Notes will be automatically called if the performance of the underlying asset is at or above the Initial Strike Price on the defined Observation Date. If called, investors may not be able to reinvest their proceeds in a product with a comparable coupon. - Returns are limited to the coupon payments, if any. Investors will not participate in any price appreciation of the underlying asset. Additionally, investors will not receive dividend payments generated by the underlying asset. - Limited secondary market. Notes should be considered buy-and-hold investments and investors should hold them to maturity. They are not traded on an exchange and there may be little to no secondary market available. - Issuer credit risk. Notes are senior, unsecured debt obligations of the issuer and all payments of income and principal are therefore subject to the creditworthiness of the issuer. - Complex investments. Notes may have complex features and may not be suitable for all investors.