Investment Committee – June 2023


Market Risks, Disconnect Between Equities and Bonds, and Portfolio Strategy Adjustments

The Investment Committee convened in June 2023 to discuss the potential risks in the market, the disconnect between equities and bonds, and adjustments to our portfolio strategy. The Committee focused on the following key areas:

Market Risks and the Fed’s Tightening

The Committee expressed concerns about the market’s assumption that the Fed will cut rates by year-end, which has limited the effect of the Fed’s tightening and taken on a significant amount of risk. This risk is reflected in the expansion of the shadow-banking system and financial imbalances, such as the concentration of gains in a few stocks within the S&P 500. While a catalyst is needed for a market reaction, the Committee remains cautious due to the unsustainable tight price ranges for most mainstream assets.

Disconnect Between Equities and Bonds

The Committee noted a growing disconnect between equities and bonds, which has led to a cautious approach in our portfolio strategy. We are considerably below benchmark weight in terms of equity allocation and are gradually building on bond duration. The Committee believes there is no significant advantage to taking on risk until the US Federal Reserve gets closer to its 2% inflation target.

Portfolio Strategy Adjustments

In light of the discussed market risks and disconnect between equities and bonds, the Investment Committee voted on adjustments to the model weights for June 2023. Changes in allocations include a reduction in cash exposure, an increase in fixed income, and a slight decrease in equities allocation. Exposure to alternatives has also been moderately reduced. Full details of these adjustments can be found in a separate article.

Other Points Discussed

The Committee acknowledged the recent rally in technology stocks, which may seem rich and reminiscent of the dot-com bubble. However, the Committee prefers to maintain exposure to the technology market rather than exit it entirely. Additionally, the overnight effect, which has been extensively analyzed in a recent study, appears to have faded significantly over the last two years.

The Investment Committee remains committed to monitoring market developments and adjusting its recommendations as necessary. By maintaining a cautious approach and adapting our portfolio strategy to the current market conditions, we strive to provide our clients with the best possible investment strategies and portfolio performance.

Authors: John Couletsis and Kostas Metaxas