However , he says that tilting clients ’ asset allocation still helps return . “ We are tactical in the sense that we ’ re always searching for value , i . e ., the notion of adding more of an asset as its price becomes more attractive and vice versa . … The stronger the value signal , the more we ’ ll lean into a particular area while being mindful of adhering to the important principles of staying fully invested , having a globally diversified portfolio and using an appropriate asset allocation for each client .”
Grecsek points to a conundrum with bonds : If interest rates go higher but asset prices remain constant and inflation is normal , he says he could see a case for adding bonds . But sharper interest rates compress equity multiples . And that means better long-term opportunities in stocks .
“ We believe that we ’ re entering a K-shaped market recovery — with the quality companies moving higher and lower-quality companies struggling .”
JACK ABLIN Cresset Capital
His long-term views aren ’ t really changing , he says , but the firm thinks there ’ s a high likelihood of recession . His team is also watching the banking crisis .
Autumn K . Campbell , a Tulsa , Okla . -based senior lead planner at RIA Facet Wealth , says her firm has reacted to rising interest rates by reducing credit-spread risk and interest rate risk , lowering the average maturity of corporate bond holdings and increasing exposure to intermediate-term , three-to-seven-year bonds , all while lowering overall bond market exposure .
“ This will make our portfolios more protected from potentially higher interest rates , and conversely able to benefit from potential Fed rate cuts with our adjusted maturity risk ,” she says . Facet also offers short-term investment strategies using high-quality bond funds , which are intended to be held for one to three years to offer clients more yield than cash in savings accounts with less risk than moderate investment portfolios .
Parameters And Guardrails Jack Ablin , the chief investment officer for Cresset Capital , says his firm uses investing categories roughly mirroring traditional bucketing strategies . The first bucket focuses on meeting clients ’ liquidity needs for up to three years , another on their income and cash flow requirements for three to seven years , and a third bucket is targeted at growth seven to 15 years into the future . The final “ aspirational ” bucket is designed to meet clients ’ long-term cash flows 15 years into the future and beyond . Around these buckets , the firm has created strict risk parameters .
“ If risk rises in the market ,” Ablin says , “ we dramatically reduce risk in the portfolios . What we really want is to have a predetermined outcome . So in our diversified income portfolio , we want a 95 % chance of delivering a positive return over the three-year holding period , and if interest rates are low and volatility is high , we ’ re reducing risk to make sure that happens .”
Meanwhile , in its growth portfolios , Cresset targets a 90 % chance of positive returns over a sevenyear period , Ablin says . “ It ’ s the same thing across the categories ; if our capital market assumptions are lower , or volatility is higher , we have to reduce risk . That discipline helped us going into 2020 . We didn ’ t anticipate the pandemic , but the market was expensive in late 2021 , and that had us reducing risk in the growth and equity strategy . With rates still low , we could reduce risk in the diversified growth and income categories in 2021 .”
Ablin says today the firm is a bit concerned about the S & P 500 and isn ’ t in a rush to add large-cap stocks . “ Another theme is that we ’ re in an environment where capital is going to become increasingly scarce ,” he says . “ Across our equity and bond spectrum , we ’ re focused on quality . We believe that we ’ re entering a K-shaped market recovery — with the quality companies moving higher and lowerquality companies struggling .”
Tonny Navarro , a CFA with the Erdmann Group , a Merrill Private Wealth Management team in Greenwich , Conn ., says that whatever the Fed does will drive what he recommends for his clients ’ portfolios . “ Asset allocation , portfolio construction and diversification are designed to remove emotion from investment ,” Navarro says . “ We ’ re never all in or all out . We certainly need to look at asset allocation to adjust to whatever the current environment is , and to choose what levers we ’ re pulling . “ When you get the weather report and hear there ’ s a 50 % chance of rain , it ’ s up to you whether you pack an umbrella .”
But he does see lending getting tighter , putting more pressure on large-cap growth , which has outperformed . “ From a defensive perspective , we ’ re carrying more cash ,” he says .
The firm is typically 2 % to 5 % cash , but “ now we ’ re at 5 % to 10 %,” he says . “ This gives us opportunities
38 | FINANCIAL ADVISOR MAGAZINE | JUNE 2023 WWW . FA-MAG . COM