Looking Back at 2022
GoalVest Portfolio Update
This year we are proud to share that we expanded the GoalVest team substantially to better serve our clients. David Abella joined as Director of Investments. David is a seasoned investment professional with over twenty-five years of experience working in high dividend securities and portfolio management. David previously managed an $8 billion portfolio at City National Rochdale. Aly St. Pierre also joined our team earlier this year, as Chief Compliance Officer. Aly has 20 years of financial services experience at leading firms, and she has a Master’s in Corporate Compliance from Fordham University. Lastly, Michael Brogan and Nicholas Tannuzzo joined our team most recently. Michael is[a Financial Planning Associate with ten years of experience in corporate finance; Nicholas will intern with us while he studies business at NYU.
With regards to investments and portfolio management, this year we ramped up our alternative investments capabilities so we can bring institutional-grade portfolios to the individual at lower minimums. We launched the GoalVest Pre-IPO Growth Fund and have deployed 16% of committed capital. We also expanded our structured yield note capabilities and the number of issuers we work with. In an environment where both stocks and bonds are down, the structured yield notes have continued to pay their income and are holding their value. Structured hedged notes are another recent addition to our portfolios to help minimize risk and volatility.
Key Portfolio Changes We’ve Made This Year
· In Q1 2022, we substantially increased our equity allocation to quality, high dividend securities with defensive characteristics that trade at attractive valuations. This is a position we are maintaining since inflation remains high and the earnings growth outlook for many companies looks uncertain leading into 2023.
· We increased our equity tilt allocation in which we introduced portfolio hedges to protect capital as we remain overweight defensive sectors like healthcare and consumer staples.
· We reduced our growth equity exposure (both large cap growth and disruptive technologies) as high inflation and rising interest rates continue to pressure earnings multiples for growth stocks this year.
· We reduced our allocation to core fixed income, especially long duration bonds, and incorporated floating rate and treasury inflation protected securities in the remaining allocation. We are currently underweight long duration bonds due to interest rate pressures, but expect opportunities to present themselves in this space as we move into 2023.
· We increased our commodities exposure (energy, agriculture) in response to Russia’s invasion of Ukraine and the resulting supply shortages.
· We also substantially reduced (by half) our international equity exposure because of Russia’s invasion of Ukraine. We continue to hold this position as energy issues and inflation put disproportionate pressure on European stocks, and lockdowns and a stronger dollar pressure emerging markets.
· We reduced our allocation to high yield bonds and are currently overweight high credit, quality bonds. This insulates us from a widening in credit spreads in case higher interest rates cause an uptick in delinquent loans or defaults.
Portfolio Update Leading Into 2023
The S&P500 is trading down 15% year-to-date, while large cap growth is down 28% and large cap value is down 9%. Minimal risk bonds are down 13%.
Inflation is still the most important challenge that needs to be addressed in markets today as the current rate of 7.7% is well above the Fed’s 2% target. We need to see a substantial moderation in inflation before the Fed can start to ease policy. Interest rates are anticipated to rise again in December, but we also expect the Fed will slow down the pace of interest rate increases in 2023 compared to 2022. Such a deceleration or even pause in interest rate increases will be a positive force for equities.
Other factors to consider are consumer spending and construction. Consumer spending is solid, though credit card balances have ticked up and there has been a slight increase in overdue payments. Building permits and housing starts have decelerated as interest rates have gone up, however, and there are signs that the housing market may start to slow down.
Overall, we will maintain our defensive equity positioning by continuing to invest in quality, high dividend companies and defensive sectors like healthcare and consumer staples. We also plan to remain underweight long duration bonds and high yield bonds and hold a healthy allocation to alternative investments for the time-being. Our outlook for 2023 is cautiously optimistic. We are eager to see what new opportunities will arise in so we can evaluate and take advantage of them where appropriate.
Sevasti Balafas, CFA, CPWA®
CEO & Founder