DON’T LET POL­I­TICS FRIGHTEN YOUR PORT­FO­LIO

Austin American-Statesman Sunday - - BUSINESS SUNDAY -

Are North Korea’s threats keep­ing you up at night, mak­ing you fret about your port­fo­lio? Should you be rais­ing cash?

No, and don’t worry — we’ve survived worse be­fore, say money man­agers and in­vest­ment ad­vis­ers.

“In­vestors should never re­act to short-term events like ter­ror­ism or wars,” said Dan Roc­cato, founder of Quaker Wealth Man­age­ment in Moorestown, N.J. “That’s not a good in­vest­ment strat­egy. Since Pres­i­dent Don­ald Trump’s elec­tion, mar­kets have been quite giddy. The calls we’ve got­ten from clients in the past months have been ask­ing us, ‘Is this rally for real?’ And the econ­omy is healthy, and so is the stock mar­ket,” he said.

His firm’s rec­om­mended cash al­lo­ca­tion is no higher than 5 per­cent for most clients, and the firm uses the Van­guard Short-Term In­vest­ment-Grade Fund as a cash equiv­a­lent. Other fixed-in­come choices in­clude TIPS and the Van­guard High Yield junk-bond fund.

Back in Jan­uary, Quaker sold util­i­ties and telecom­mu­ni­ca­tions sec­tors and ro­tated into health care and in­ter­na­tional names. The firm uses mostly exchange-traded funds, called ETFs, and sec­tor funds such as the Van­guard Health Care Fund and iShares Nas­daq Biotech­nol­ogy.

Ge­orge McFar­land, pres­i­dent and chief in­vest­ment of­fi­cer of Penn­syl­va­nia Trust, a Rad­nor, Pa.-based wealth man­age­ment firm, said it has been buy­ing and hold­ing tech­nol­ogy shares, such as Amer­i­can Tower, and fi­nan­cial shares, such as Cit­i­group.

“The Trump ad­min­is­tra­tion has been able to ef­fect some dereg­u­la­tion without Congress, so banks are the ben­e­fi­ciary of that. Fi­nan­cial stocks had a run-up post elec­tion, and then as their first 100 days came and went without progress, they went side­ways a good bit this year, and then re­sumed their ad­vance,” he said.

The firm is un­der­weight en­ergy, as “we see oil mired in a range of $40 to $60 a bar­rel. In­dus­tri­als we re­ally like, such as Raytheon and Cater­pil­lar, which we own.”

Penn­syl­va­nia Trust might sell a stock in one port­fo­lio and own it in another. For in­stance, in its Growth strat­egy, the firm doesn’t own Ver­i­zon and AT&T be­cause “they had a few years of at­trac­tive earn­ings growth, but that’s be­hind them now.”

How­ever, in its Eq­uity In­come strat­egy, “we do own Ver­i­zon be­cause it has a 5 per­cent div­i­dend yield and makes sense in that port­fo­lio.”

McFar­land will of­fer a small al­lo­ca­tion to gold as a hedge against event risk and a fall­ing dol­lar.

“We do have that con­ver­sa­tion with clients, and we will ei­ther rec­om­mend a low-cost gold-min­ing ETF or ac­cess to phys­i­cal gold in a vault.”

What about the robo-ad­vis­ers, which au­to­mate the in­vest­ing process? Bet­ter­ment, an early robo-ad­viser with $10 bil­lion in as­sets, “feels strongly that we do not want any cash drag. We try to hold zero in cash at all times,” said Alex Benke, Bet­ter­ment’s vice pres­i­dent of ad­vice and plan­ning, based in New York.

How­ever, for clients who re­quest it, “we do have lower-risk of­fer­ings such as a port­fo­lio of all short-term Trea­suries, which is a cash equiv­a­lent,” us­ing the iShares Short Term Trea­sury ETF.

“It doesn’t earn a ton, but it’s in­cred­i­bly safe,” Benke added.

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