DON’T LET POLITICS FRIGHTEN YOUR PORTFOLIO
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.