Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA, joins Jenny Harrington on “Halftime Report” to go over their most recent portfolio moves. Brenda's commentary begins
Fourth Quarter and Full Year Review
Published Date : January 30, 2017
In a year characterized by the unexpected, maintaining a disciplined approach to managing your portfolio was our primary objective. During the unsettled economic environment that existed during the first half of the year, we used market volatility to rebalance your portfolio into the extreme sentiment we observed. In the second half, given the noteworthy risk the U.S. election presented, we chose to emphasize risk management first and foremost, and positioned portfolios conservatively.
Early in the year, equity markets suffered through a period of significant volatility as the economic outlook was impacted by many of the same concerns that carried over from 2015. These included slowing global growth, Chinese currency volatility and falling oil prices. We navigated this difficult environment by adding to equity during the first quarter when stocks experienced their worst start to a calendar year in history, and then reduced that excess exposure after the market had fully recovered in April.
By late June, the economic data was beginning to show signs of improvement and oil prices were finally on the mend. We felt these two factors would contribute to improving fundamentals in emerging markets, which had become undervalued following five years of underperformance relative to developed markets. We used the market pull back on the day after the Brexit result to add exposure to this asset class.
As the year progressed, global economic growth began to pick up, deflationary concerns declined, and signs of “good” inflation rose. It also became apparent that fiscal stimulus would likely be used more broadly around the globe in an effort to further support economic growth. These factors contributed to a meaningful shift in market sentiment and performance, triggering the so-called “Great Rotation” into stocks at the expense of bonds. The equity market delivered a positive return and bonds sold off as interest rates began to rise. We navigated this environment by taking a slightly different approach than we had used during the first half of the year. This included transitioning sector exposure within our equity allocation to more attractively valued areas such as the regional bank sector while reducing exposure to higher yielding sectors where valuations had become stretched. We also added to commodities based on our view that supply and demand of oil would continue to become more constructive over time.
During the fourth quarter, we recognized that no matter what the election outcome, the economy was on solid footing and corporate earnings were poised to recover nicely in 2017. The day after the election, we reduced our bond allocation, as well as the average maturity of our bond holdings. We also increased absolute return and added exposure to energy-focused equity. Equity markets followed their historical pattern and rallied during the post-election period as market participants generally took an optimistic view of the various pro-growth policies that may be implemented. Meanwhile, bonds experienced their worst quarter in 35 years as global interest rates rose.
As 2017 begins, the economic outlook is certainly brighter than it was a year ago. Global growth has exited its two-year lull and corporate earnings growth is rebounding considerably. While there are many reasons to be hopeful, we are also mindful of potential risks which may be driven by political events here and abroad. We will continue to prudently manage portfolios by balancing risk and reward, and look to take advantage of volatility to tactically rebalance portfolios to achieve our clients’ long-term objectives.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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