2022 Q1
In Part 3 of our video conversation on volatility sent out this month, we highlighted fundamental components to a sophisticated investment strategy:
- leveraging institutional grade investment analysis
- diversification
- a frequent portfolio review cadence, making tactical adjustments as necessary
Responding and adapting to the escalating conflict in Eastern Europe, we are re-optimizing portfolios intra-quarter and making important tactical changes.
In our view, the prospect of a protracted conflict and enduring economic sanctions has increased and could have meaningful downstream effects on European growth, global inflation, and global energy prices.
Key Takeaways
Economic Impact on Europe
We are anticipating weaker European industrial production and higher commodity prices - two macro factors that will further contribute to the supply-constraint-driven-inflation phenomenon already impacting global economics.
In Europe, interruptions in trade are interfering with industrial production schedules and dampening investment.
Similarly in Europe, pronounced energy price increases are depressing consumer spending and causing most “cost-push” inflation (price increase due to increase in raw material cost).
Impact on the Global Economy
Globally, while less severe relative to Europe, commodity price increases place net negative pressure on real growth.
Specifically, we can expect oil and transportation costs to remain elevated this year. No longer relying on Russia for an estimated third of our domestic oil supply, the United States is now strategizing a new approach to increasing foreign and domestic access to oil.
Trade Details*
*Tactical changes are dependent upon your investment strategy and risk tolerance.
While we remain generally risk-on in our positioning, we are recalibrating our exposures to reflect the changing macro environment discussed above.
- Moving underweight Europe and overweight US market stocks, getting ahead of potential upcoming earnings misses and downgrades as financial and economic disruptions visibly concentrate in Europe
- Exit global financial stocks
- Increasing exposure to energy stocks and commodities, expecting continued upside pressure on oil, wheat, fertilizer, and industrial metal prices in response to unprecedented sanctions now levied on Russian exports
We will continue to monitor the situation in Europe and execute on our sophisticated investment approach - keeping you informed on our strategy and tactical adjustments. If you have any questions, please reach out to our team!
