Mid-Year Portfolio Update – July 2022
July 15, 2022
What’s New at GPW
July brings many celebrations, memories and fresh perspectives in the form of Independence Day, summer vacations and a mid-year market and economic outlook. Join us as we dive into the details in our mid-year outlook and touch on how we are serving our surrounding communities for this upcoming school year!
GoalVest Mid-Year Portfolio Update
In June, we saw a moderation in economic activity as measured by various data points, which investors viewed as a positive signal. A moderation in economic activity may help tame inflation which has remained elevated this year. This improvement in market sentiment caused the S&P500 to rally 6%.
In a broader outlook, the S&P500 is trading down 18% at the halfway point of 2022. We’ve seen elevated inflation this year as the price of groceries, gas, shelter, and other inputs remains high. In May, the CPI was reported at 8.6% which caused the Fed to increase interest rates by seventy-five basis points (0.75%), the biggest interest rate increase in 28 years. Leading into the mid-term elections, inflation is ranking as the most significant policy issue facing voters and we think the Fed will continue to increase interest rates this year in an attempt to bring inflation down.
We believe that economic growth will continue to slow down as well. In June, retail sales, housing starts, and industrial production missed estimates, and the Philly Fed manufacturing index turned negative. The Fed also decreased their economic growth forecast from 2.8% to 1.7%. If economic growth continues to slow down at a healthy rate, it could help bring down inflation. However, if economic growth slows down too fast, it would be a headwind for corporate earnings. In our view, inflation is likely to remain elevated over the course of this year, even if the rate of inflation starts to stabilize. We also think that the slowdown in economic activity has increased the chance of a recession in the US over the next 12 months.
As a result, we are focused on optimizing risk-adjusted, inflation-adjusted returns. Our portfolio remains diversified as we continue to make tactical changes while remaining invested in quality companies.
- In our equity allocation, we are overweight, quality high dividend companies with pricing power.
- We have reduced our international equity exposure.
- Outside of equities, we have increased the size of our portfolio hedge (~5% of equity exposure on average through structured absolute notes).
- We have increased our exposure to deep barrier structured yield notes.
- We are increasing our exposure to alternative investments outside of stocks and bonds, including pre-IPO companies that are not subject to daily volatility.
- As always, high-quality American companies with strong business models and real profits are a staple in our investment portfolios. We are long-term investors, so our goal is to stay invested in leading companies while tactically changing our asset allocation to optimize risk-adjusted returns.
Community Outreach – EmberHope
Summer is in full swing and as we get closer to back-to-school season, we recognize that not all children have the resources they need to be prepared for the upcoming school year. This year, Gentry Private Wealth has the pleasure to contribute to EmberHope’s Annual Back-to-School Drive. EmberHope is a 501 C(3) nonprofit organization based in Newton, Kansas. They focus on making a positive impact on children, teens and families and have been doing so for over 95 years. If you would like to read more about EmberHope, please visit their webpage at https://www.emberhope.org/about-us/.
The Back-to-School Drive runs through July 31st. If you would like to donate, please drop off your donation at our office any time during normal business hours before July 31st.
