Market Update

Rob Brinkman

We have seen recent gyrations in the stock market and the bond, but nobody really pays attention to the bond market, although we should. Today we’re speaking with Mike of United Asset Strategies, and the cool thing about Mike is as good as they are on the stock equity side, they have even deeper, stronger knowledge on the fixed income or bond side.

Market volatility shakes people’s financial peace so we want to address this.

Mike Riccardi

A healthy market has to have pullbacks. When markets just continue to rise too long without taking a breather, that’s where your bubbles can be created. Remember the housing market bubble? Once people feel it’s only going to go up, that’s where it’s so important for the market to be able to take a breather. Otherwise, you get very dangerous bubbles that are built.

 

When people say the market is down, what market are you talking about? There are parts of the markets that offer good value relative to others that might be getting overdone.

 

We see that in the bond market as well. You know, the bond market’s had a huge run as rates continue to go lower and lower. Many of these bond funds have enjoyed the appreciation of bonds when rates are dropping. However, there’s a reckoning that’s starting to happen with the bond market because rates are so low. How much lower can they go?

 

We used to say, well, they can only go to zero, right? Germany currently is proving us wrong. They can actually go negative in a short period of time, but to invest anticipating yields are going to go negative we don’t feel as very wise. So once again, we are seeing a little bit of a breather on rates. Historically with the $1.9 trillion packages, you’d see rates rising a lot quicker, more concerned about inflation. However, there is an anchor out there that historically we haven’t had, and that’s really international rates being so low. We are no longer in a vacuum like we used to be, it’s a global economy.

 

There are so many aspects and so many elements to markets that, you know, to be able to go in and figure out where the inefficiencies are and to take advantage is a huge deliverable for clients.

 

Rob Brinkman

When interest rates started going really low three or four or five years ago, a lot of money managers just threw in the towel on the fixed income side and decided just to use funds or ETFs, and you all continue to buy individual securities. So can you just speak to that, about that strategy?

 

Mutual funds, bond funds, and ETFs as a whole are not going to move as much as the individual securities, yes, but by buying the individual securities, we actually have bonds that have appreciated while some bonds are depreciating. Well, if you put it all on a fund it will reduce somebody’s overall volatility, but really take away from that tax swap opportunity where here we can pinpoint the individual bonds that currently are having more volatility, do a swap within that type of bond without having to touch the bonds that have appreciated.

When you say the market down, once again, it’s off all-time highs. The reality is the market’s supposed to be making an all-time high every year, even if it goes up 1%, it’s an all-time high. It’s very healthy for the market to have these little pullbacks. These pullbacks, to me, are a good way of testing. Are there any bubbles that are bursting? It’s really important to make sure that there aren’t any bubbles out there, because when they burst, it gets very painful.

 

Rob Brinkman

Everybody says that they have customized portfolios, but in reality, they’re mostly just cookie-cutter portfolios. One of the things we tell folks is, look, let us do an evaluation of what you have. If what you have is good, it will be obvious. If it’s not, you understand why, and that’s something that you do on a consistent basis. It’s something that you actually want to do in order to help people out, is that a fair statement?

 

Mike Riccardi

Yes. It is important to understand how investments are correlated and how they can respond in coordination to events that are unknown and unseen in the future. You always want to ensure that your portfolio has that proper balance so as events are happening, you best capture the flow of money.

For example, when COVID broke and the market initially went down, even Amazon dropped 15% in value. Why? Because they’re part of the index that people were panic selling.

 During those times, you want to be thinking about what individual companies will benefit, which individual industries will benefit to build a portfolio to position and to capture that and you can’t do it well just using ETFs or indexes.

Using individual securities enabling us to do a better job to reduce risks, but also to see where people are gaining market share and where you want to shift the portfolio. One of the reasons we can efficiently do that is because the majority of the investors out there are just indexing ETFs because that’s what all the books said to do.  For example, when we’re buying bonds, we don’t have a lot of competition buying for multiple reasons. The same is happening on the stock side because of so much indexing so we have less competition buying the individuals, securities and positioning things that way.

It’s critical to bring in support, strong people that can look at different markets, but at the same time, look at things from a coordinated effort. I always like to make sure on the investment team, we have people that look at markets through different lenses, and therefore we can understand the pros and cons of any investment and we can start to prioritize where to put things. It’s an exciting process!

If you want Mike and his team to evaluate what you have to see if it is good or understand why it’s not, just let us know. Send a message or schedule a call today!