Investment Policy Committee Update - November 2023

As we begin to tie the bow around 2023, we look back at a year of significant events. The banking issues of Spring now seem like a distant memory following action from the Federal Reserve. Textbook oddities like Taylor Swift impacting US economic growth appeared. Market volatility continued as bets were placed on whether the Fed was done with rate increases and global military actions seem to unfold daily. The adage of the markets ‘climbing the wall of worry’, so far, seems to be holding true.  

Looking at economic cycle positioning as we move into 2024, we believe the ‘climb’ is justified. Our latest rebalance, in late October, continued our trend overweighing equities and increasing our home country bias. We did this by specifically leaning further into growth and technology companies & moving higher in market capitalization. These moves position us to benefit further from the earnings leadership we expect to continue across the largest so called “Tech+” (traditional Tech sector with Communications) companies in the US.

Outside the US, we reduced overall exposure to international Developed Market stocks based on weakening corporate earnings and more pronounced downside vulnerability due to potential rising energy prices and geopolitical turmoil. In addition, we trimmed our emerging markets underweight, adding exposure to Emerging Market countries with the most attractive earnings prospects and/or growth potential (think Taiwan and India), while seeking to insulate the portfolios from a litany of headwinds in China.  

On the fixed income side, we increased credit risk in bond-heavy portfolios, an opportunity to capture attractive yield opportunities at current levels. We continue to have allocations positioned in a treasury barbell fashion with a modest overweight to duration, capturing attractive yields on the front end of the curve with ballast on the long end to serve as a shock absorber against our added equity exposure.

In summary:

When we last rebalanced our Portfolios in summer, we highlighted a more optimistic view around US equity markets, earnings expectations, and the increasing attractiveness of bond yields. However, at that time, we recognized the potential for near-term weakness stemming from declining liquidity and seasonal trends as the logic for remaining patient on a more pronounced risk-on stance. Our October rebalance reflects a continuation of our optimistic views coupled with a recognition that we now have an opportunistic moment to lean into risk as we move into year-end.

We will continue to provide ongoing updates on our views and investment positioning through posts like this and as we meet. Should you have questions about our investment strategy, please let us know and we will make sure to review details at our next meeting. And while we don’t recommend fixating short-term market fluctuations, if you would like to check specific investment performance across all your accounts, our Buttonwood Portal is available 24/7. Thank you for your continued trust and allowing us to coordinate your asset management as part of our Family CFO services!