Author: Thomas Martin, CFA Senior Portfolio Manager
Invest it. What to do with an already fully invested portfolio? Stay invested.
Why? With the S&P 500 and Nasdaq near all-time highs and up nearly 15% year-to-date, isn’t that a risky time to put cash to work in the markets? Perhaps the most important thing to remember about true investing, is that it is investing. It is by its very nature risky, uncertain, and difficult to time. It is also long-term. It should have a long enough time horizon to weather shorter-term ups and downs. The next most important thing is to diversify exposure to risk. Different assets usually act differently in different scenarios. Why invest now? To prudently gain exposure to risks and their associated returns and build wealth over the long-term. That can only be accomplished by putting money to work.
We view the near-term prospects for equities and fixed income to be positive on balance. This doesn’t mean that we think it will be blue skies and clear sailing with uninterrupted gains, but we don’t view the markets as being vulnerable to an imminent top. We see a number of favorable underpinnings that are supportive of the current levels of equity and fixed income prices.
Business fundamentals appear to be stable. Not all companies, industries and sectors are doing equally well, but the factors of production are settling into a level that is closer to normal as time moves on from the disruptions initially put in place by the global pandemic. Unemployment is low, and jobs are being net created. Companies and consumers still have money to spend and a willingness to spend it. Price levels may not be ideal, but they appear to be manageable. The same can be said of credit availability and interest rates, in our view. Education, talent, and skills, although not perfectly distributed and matched, seem to be generally meeting the needs of operators. The US economy is broad and diverse, and ingenuity, problem-solving and the motivation to improve is alive and well. This has resulted in a reacceleration in revenue growth, margin improvement, and thus profit growth.
The markets themselves have a few things going for them as well. Generally speaking, technical indicators are more indicative of further gains rather than the beginning of a downturn. Sentiment is positive but is not indicating an overweight of excess as we read it. This stage of the election year cycle has been a tailwind for markets in the past. Interest rates have risen significantly since they were close to zero but are within range of their highs and have the potential to stabilize here or even a bias in the downward direction.
We remain close to fully invested in the strategies we manage. We are positioned in keeping with those points we noted above. We are diversified across investment styles, market capitalizations, sectors, industries, and companies. Our investments are highly liquid, so we have the ability to move quickly if necessary. We believe we have a degree of non-correlated exposure that has the potential to benefit the portfolio should macro events get rough. We believe our strategies are positioned as prudent investments for new and already invested money.
Source: FactSet, Ned Davis Research
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