In Part 3 of our video conversation on volatility sent out this month, we highlighted fundamental components to a sophisticated investment strategy:
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.
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).
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.
*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.
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!