To open this quarter’s newsletter we wanted to echo our sentiments of early April in that “First and foremost, each and every one of us at 1st & Main hopes you, your family and loved ones near and far have stayed safe and out of harm’s way over the last many weeks. This is our primary concern as we are sure it is yours”. And to add that if anyone finds themselves un or under-employed, unable to meet his or her monthly obligations, in need of an income/expense analysis or longer-term planning review we are here to help. As we all continue to adapt to the new norm we can’t stress enough that our team is here at every step along the way.
Despite the fact that we now find ourselves firmly entrenched in a recession, within days of publishing our fairly grim Q1 2020 newsletter global equity markets began a remarkable recovery. In fact the fastest 30% drawdown in the history of the stock market was followed promptly by the largest 50 day advance on record.
And while our opinion remains that the recovery in equities in no way reflects the health of the overall economy the Tactical Allocation Portfolio (TAP) embraced risk beginning in early April and ramped up exposure over the ensuing 6-8 weeks. Those who follow our Weekly Market Updates will note that a handful of positions added to the portfolio early on do not remain. And that the model was actively taking the temperature of markets along the way using small incremental increases to underlying exposure. The V shaped recovery has not come without volatility and as such the risk management measures we speak of often sought to reduce risk from time to time over the
course of the quarter in the event markets rolled over again as the economy desperately tried and continues to try to re-open.
All of this has left the model in great shape. With all major market indexes in negative territory on the year (with the exception of the NASDAQ 100) our all equity model finds itself roughly even while those blended with fixed-income slightly to moderately higher. In short, the full-scale risk event the model realized in late February moved clients out of harms way but very quickly identified areas of opportunity, several of which we still embrace today.
In terms of the fixed-income model our screening process also identified an opportunity and thus a shift from intermediate the long-term maturities in the underlying securities in late April. This shift has proven profitable, and yet just like in the equity model we monitor risk on a daily basis should this change.
We feel more confident in the approach than ever before. The enhancements we put in place in the fall of 2018 have served to tighten up our risk controls and also to accelerate the re-entry process when the time comes following an event. You’ll note that we chose not to include a macro economic recap as is typical in this publication, in large part as we are all living through these very uncertain times together. The “significant hurdles” facing the domestic economy we outlined three months ago remain, only adding to uncertainty. Again, we wish you and your family all the best and look forward to speaking with you soon.
From our families to yours,
Fraser, Dudley, Alex, Josh & Christie
