May 26, 2025
Navigating Economic Waves: A Portfolio Strategy
Navigating Economic Waves: A Portfolio Strategy - Brian Regan joins Chris Boyd and
Jeff Perry to discuss a recent article Brian authored (see link below) which suggests that
staying calm and ensuring that investment strategies are robust and adaptable, one can
weather the economic “storms” triggered by tariff policy and related economic news.
Brian comments that, “Just like a well-prepared vessel can withstand the might of the
Atlantic, a thoughtfully managed portfolio can endure and thrive amidst economic
turbulence.”
https://www.thestreet.com/retirement-daily/your-money/navigating-trumps-economic-
waves-a-portfolio-strategy-for-investors
For more information or to reach TEAM AMR, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
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Welcome to Something More with Chris Boyd.
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Chris Boyd is a certified financial planner, practitioner,
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and senior vice president, financial advisor at Wealth
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Enhancement Group, one of the nation's largest registered
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investment advisors.
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We call it Something More because we'd like
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to talk not only about those important dollar
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and cents issues, but also the quality of
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life issues that make the money matters matter.
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Here he is, your fulfillment facilitator, your partner
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in prosperity, advising clients on Cape Cod and
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across the country.
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Here's your host, Jay Christopher Boyd.
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Welcome and thank you for being with us
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for another episode of Something More with Chris
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Boyd.
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I'm here with Jeff Perry, who is my
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regular co-host, and Brian Regan, who is,
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we're off with the AMR team of Wealth
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Enhancement Group, and Brian is our senior portfolio
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manager, always giving great perspective on market conditions
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and economic circumstances and how we might want
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to navigate that with the way we do
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our investing.
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And Brian, you recently had a great article
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that you posted or had published through Retirement
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Daily on thestreet.com, a great topic for
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us to talk about because markets have been
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quite volatile over the last couple of months
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with tariffs are on, tariffs are off, well,
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90 days anyway.
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And then, well, we've got all these different
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sort of variables coming in, you know.
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So how is an investor to navigate these
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challenging various possible circumstances?
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So maybe you can walk us through.
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How should investors be thinking about these circumstances?
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Yeah, thanks for having me, guys.
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It's a pleasure to be here.
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I really like doing this.
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I think it's always fun when we have
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good discussions.
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So if you guys are familiar, Chris, I
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know you are, you own a boat.
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If you're familiar with the Atlantic Ocean or
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Cape Cod Bay at all, you know that
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the winds can change unexpectedly, and before you
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know it, you're in eight-foot surf waves
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on a 20-foot boat.
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And that's basically what I feel like has
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happened in the economy in the last couple
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months, right?
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Now, it doesn't necessarily mean that you're going
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to sink, and I think that's the metaphor
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that I use at the beginning of this
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article.
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How do we position, how do we drive
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our financial boat in order to get through
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difficult times?
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And as you guys know, that's how we
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think about asset allocation.
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We're not static with our approach.
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We do what we call active allocation, which
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typically means that we're going to reconsider the
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asset allocation every quarter and make changes subsequently.
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So this article was really about how we
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approach the new situation and what we did
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about it.
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So with that preamble, what did we do?
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It was a difficult situation.
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I thought that it was a very binary
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situation.
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We did this exercise at the Wealth Enhancement
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Group where we were trying to game out
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different scenarios that could happen, and the more
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and more I thought about it, the more
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and more I realized that there's really only
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two scenarios.
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This tariff situation continues to be bad, and
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we have a recession, and the markets go
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down pretty good.
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Or we start to reverse everything we've done.
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And to my pleasure, that's the tact that
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has been going on so far.
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But I think when you think about asset
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allocation as a whole, I think it's a
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good idea to think about your duration and
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your fixed income positioning first.
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And the reason for that is because the
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yields and yield curves will change what's going
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to happen in the equity market.
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So it's a good idea to get a,
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where am I comfortable with my fixed income
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position?
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And then contrast that with how you want
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to position your equity portfolio.
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So when we started with the fixed income
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portfolio, there was a lot of questions right
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at the beginning.
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Tariffs are depressionary, and they depress the market,
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but they depress growth, but they're also inflationary
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at the same time.
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So what does that mean?
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Well, it means the longer end of the
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curve should probably come down because of less
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growth, and it means the shorter end of
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the curve should probably go up because of
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inflation concerns.
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And that means either a flattening curve or
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even an inverted curve again.
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So you couple that with the fact that
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we might have issues with bond vigilantes, foreign
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currencies, foreign countries deciding they might want to
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put the U.S. Treasuries in the penalty
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box.
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Slowing imports, which you might not think that
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should affect the Treasury market, but the United
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States exports dollars, and those dollars end up
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being recycled into U.S. dollar denominated assets.
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So less imports may mean less capital availability
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to buy things like Treasuries.
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And what if inflation expectations rose due to
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increased taxes?
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That's ultimately the big one.
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So when you put that all together, I
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had no feeling or no confidence that I
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could make a judgment on where the long
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end of the Treasury curve was going to
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go because you have all these inflationary and
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technical factors, but you also have the fact
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that you would expect growth to slow.
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So what we expected was a very, very
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volatile Treasury market, and that has been what
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we've had over the last month.
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So with that analysis, the decision was to
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stay very short in investment grade bonds in
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our fixed income portfolio.
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Maybe elaborate on when you describe the prospects
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of a flat or a flattening or possibly
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even inverted yield curve, why that gives merit
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to the idea of emphasizing more on the
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short end of the yield curve, shorter term
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bonds.
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Are they benefited in that circumstance?
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Yeah, I mean, I don't know if that's
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necessarily going to be the case, but let's
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take that.
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Let's take that as the base case, right?
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That we're going to have some kind of
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inverted yield curve, which means the shorter end
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of the curve, which takes less interest rate
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risk.
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There's less risk in the shorter end of
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the curve is going to pay a higher
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yield.
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That's as close as a free lunch as
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you're going to get in this business.
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So you're going to get paid a higher
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yield and you're not going to take as
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much risk.
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The benefit of an inverted yield curve is
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that process of the longer end coming down
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could be beneficial.
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You could get a capital gain from that
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as interest rates fall.
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But I think what I struggled with is
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it's tough to decide because of the technical
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factors that I mentioned, like bond vigilantes or
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foreign countries holding the U.S. government accountable
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or increasing deficits or slowing imports.
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All those things could make it so that
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expectation of a falling longer term treasury may
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not happen.
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And that has not happened, right?
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At least over here in the last couple
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of months.
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So, you know, either way, I want to
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be short on the curve.
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I don't think that risk is worth it.
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And the benefits, you think, in terms of
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the amount of disparity and what you're getting
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further out on the yield curve versus the
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shorter end, you think that the benefits outweigh
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the risks, essentially?
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So let's just take a money market fund,
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right?
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I'm getting four and a quarter.
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If I buy a 10-year treasury today,
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I'm getting 460, but that's high compared to
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how it's been in the last month or
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so, right?
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So I was getting closer to four and
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a quarter.
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So I could take very little interest rate
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risk and get four and a quarter, or
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I could take a lot of interest rate
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risk and get four and a quarter.
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That math is getting more attractive for the
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longer term every day that ticks by here
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in recent days.
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But the math just didn't make sense.
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You want to get paid for more interest
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rate risk, which is why the yield curve
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is typically a little steep.
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You should get a little bit of a
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liquidity premium for holding longer term bonds.
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And just for our listeners, we're recording our
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conversation on May 22nd in case things change
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materially in the next few days.
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It's important to timestamp everything these days.
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Yeah, just in case.
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Well, so that gives us a flavor for
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how you're thinking about bond positioning.
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How are you thinking about positioning stocks?
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And as you talked about, we're asset allocators.
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We do believe in long-term investment positioning,
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but we also, on the edges, like to
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do some modest tactical adjustments.
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We're not trying to time the markets and
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jump in and out with our equity exposure.
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But there are things we do to try
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to be responsive to what's happening in the
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world around us.
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So how does that work its way into
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your thoughts around equities today?
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Yeah, it's a great setup, Chris.
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And I think that's important to know that
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these are not wholesale changes.
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We're not getting far away from people's risk
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profiles.
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We're trying to make active decisions within people's
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risk profiles.
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And ultimately, the risk profile is going to
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decide your, more or less, your long-term
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performance.
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So I think we're a little unique in
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that we don't silo our thinking with fixed
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income and equity.
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I think that's very common.
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If you talk to other allocators, they'll have
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whole separate teams that think about fixed income,
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whole separate teams that think about equity.
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Even in the home office at WEG, that's
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generally how it's set up.
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And that's fine.
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I'm sure there's good reason for that.
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It is the norm.
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We're a little unique in that I think
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that you need to consider your duration position
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when you make your equity position.
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And since we're short in duration for fixed
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income for all the reasons that we just
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talked about, I want to be a little
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bit long in my beta.
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So what does that mean?
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Beta is a measure of relative volatility versus
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the market.
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So if I own a stock with a
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beta of 1.2, well, it's 20%
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more volatile than the S&P 500.
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That's a simple way of thinking about it.
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It's important to note that that's based on
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backward-looking data.
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So even if you look at a one
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-year beta or a three-year beta or
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a five-year beta, they'll be different.
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But quantitatively, this is a reasonable way to
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think about positioning your portfolio.
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But I also think you need to do
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it fundamentally, and I'll get into that in
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a minute.
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So why do I think you need to
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take more beta exposure if you're very short
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in duration?
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Well, if interest rates fall, right, longer-term
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interest rates fall, I won't get a tailwind
277
00:11:31,300 --> 00:11:33,540
from my fixed income because I'm very short
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in duration.
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It will be minimally affected.
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I'll get my coupon and that's it.
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But the cash flows on my equity will
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be discounted at a lower rate, which means
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00:11:42,460 --> 00:11:43,600
that stocks should go higher.
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So even though I'm not getting much from
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my fixed income, I'll be getting a benefit
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from my equity, and that's the great thing
287
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about diversification, right?
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You don't necessarily hit it out of the
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park in all aspects because you're not really
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diversified.
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But what you want to do is you
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want to balance the risks so that you
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can do well under a lot of environments.
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Now, what if interest rates rise?
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00:12:07,380 --> 00:12:09,560
My fixed income won't suffer, right?
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But under that same logic, my equity will
297
00:12:13,040 --> 00:12:15,460
likely be hurt, but at least I'll be
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buffered a little bit by my fixed income.
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Both of them won't be hurt at the
300
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same time.
301
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Now, if interest rates rise because growth increases,
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well, then I'll probably benefit on both sides,
303
00:12:26,360 --> 00:12:26,520
right?
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I won't get hurt on my fixed income
305
00:12:27,960 --> 00:12:32,640
as interest rates rise, but the earnings expectations
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00:12:32,640 --> 00:12:35,100
on my equity will probably go up, so
307
00:12:35,100 --> 00:12:35,740
I'll win there.
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00:12:35,740 --> 00:12:38,800
So under falling interest rates, under rising interest
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00:12:38,800 --> 00:12:41,520
rates, I think I'm better off if I
310
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have more beta during short duration.
311
00:12:44,760 --> 00:12:48,540
Now, of course, the downside to this would
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be what if rates fall due to decreased
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economic growth?
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00:12:51,220 --> 00:12:52,460
I could be challenged on both sides.
315
00:12:52,560 --> 00:12:55,240
I'm not going to get the benefit on
316
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the income side, and I'm going to get
317
00:13:00,380 --> 00:13:01,740
hurt on my equity side because my earnings
318
00:13:01,740 --> 00:13:03,060
expectation is going to go down.
319
00:13:03,060 --> 00:13:04,720
Now, when I say I'm not going to
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00:13:04,720 --> 00:13:07,280
get my benefit on my fixed income side,
321
00:13:07,400 --> 00:13:08,700
I'm not going to get a huge capital
322
00:13:08,700 --> 00:13:10,420
gain, but I'm also not going to lose
323
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anything.
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So I think this is the best way
325
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to position for both the upside and the
326
00:13:13,920 --> 00:13:17,040
downside, and since we're in this binary situation,
327
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that's something that you need to consider, right?
328
00:13:21,880 --> 00:13:23,580
I want to protect on the downside but
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also participate in the upside, and that's the
330
00:13:25,220 --> 00:13:26,700
delicate balance that we're doing here.
331
00:13:28,140 --> 00:13:31,020
Now, if you really want to avoid that
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00:13:31,020 --> 00:13:34,940
last scenario, right, where interest rates fall due
333
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to decreased economic growth, then I need stocks
334
00:13:39,540 --> 00:13:41,060
that will grow during all environments.
335
00:13:41,140 --> 00:13:42,780
So even if the economy falters a little
336
00:13:42,780 --> 00:13:44,880
bit, I want stocks that will continue to
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grow.
338
00:13:45,280 --> 00:13:48,040
So I think that eliminates small cap, for
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00:13:48,040 --> 00:13:50,200
example, and that's one of the reasons why
340
00:13:50,200 --> 00:13:52,760
we eliminated small cap in our portfolio.
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00:13:52,940 --> 00:13:54,100
I think they're going to be more economically
342
00:13:54,100 --> 00:13:54,500
sensitive.
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00:13:55,260 --> 00:13:57,260
Now, that does bode well for some of
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00:13:57,260 --> 00:14:00,000
the biggest, largest stocks with minimal debt that
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00:14:00,000 --> 00:14:05,160
are capital light asset allocations that have subscription
346
00:14:05,160 --> 00:14:09,120
predictable revenue growth, or in other words, predictability
347
00:14:09,120 --> 00:14:10,880
with growth, as you guys know that I
348
00:14:10,880 --> 00:14:12,400
always preach, right?
349
00:14:12,520 --> 00:14:13,520
It's my favorite thing.
350
00:14:13,520 --> 00:14:16,200
So you can look at high-quality businesses,
351
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and you could do it that way, right?
352
00:14:18,660 --> 00:14:20,560
And we've expressed that in ETF mutual fund
353
00:14:20,560 --> 00:14:25,400
portfolios through an allocation in MGK, which is
354
00:14:25,400 --> 00:14:28,280
a Vanguard mega cap growth index, and the
355
00:14:28,280 --> 00:14:31,480
top names include Apple and Microsoft, Nvidia, Amazon,
356
00:14:31,700 --> 00:14:33,200
Meta, Broadcom, and Eli Lilly.
357
00:14:33,360 --> 00:14:36,260
These are all blue-chip household names.
358
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Another way that you could increase your beta
359
00:14:39,040 --> 00:14:40,160
and you could do it with a smaller
360
00:14:40,160 --> 00:14:44,020
allocation in your portfolio is by doing more
361
00:14:44,020 --> 00:14:44,800
speculative investments.
362
00:14:45,240 --> 00:14:48,100
So, for example, the ARK Innovation Fund has
363
00:14:48,100 --> 00:14:50,220
a beta of two, so I could allocate,
364
00:14:50,580 --> 00:14:52,200
in theory, a whole lot less to that
365
00:14:52,200 --> 00:14:53,540
and still get my beta up.
366
00:14:53,980 --> 00:14:56,260
The problem with that is I don't think
367
00:14:56,260 --> 00:14:57,460
that's reliable growth.
368
00:14:58,060 --> 00:14:59,860
I don't think the companies in there are
369
00:14:59,860 --> 00:15:01,760
as solid, so that's why I choose not
370
00:15:01,760 --> 00:15:02,320
to do that.
371
00:15:02,880 --> 00:15:07,040
The top names there include Tesla, Roku, Roblox,
372
00:15:07,260 --> 00:15:07,880
Coinbase.
373
00:15:09,280 --> 00:15:11,460
So that might be a matter of preference
374
00:15:11,460 --> 00:15:12,600
on how you want to get your beta
375
00:15:12,600 --> 00:15:14,580
up, but for me and my clients, I'd
376
00:15:14,580 --> 00:15:17,920
rather focus on the higher-quality companies.
377
00:15:18,980 --> 00:15:20,640
Is there a difference in – oh, sorry,
378
00:15:20,700 --> 00:15:22,000
just real quick on the follow-up.
379
00:15:22,000 --> 00:15:24,000
Is there a difference in concentration in the
380
00:15:24,000 --> 00:15:27,540
way those two portfolios approach their selections?
381
00:15:28,100 --> 00:15:30,680
Well, they're both fairly concentrated, so that's something
382
00:15:30,680 --> 00:15:33,200
that you want to keep an eye out
383
00:15:33,200 --> 00:15:35,420
for whenever you get more granular in your
384
00:15:35,420 --> 00:15:36,120
asset allocation.
385
00:15:36,500 --> 00:15:39,200
But in this case, we're actually trying to
386
00:15:39,200 --> 00:15:39,900
look for that, right?
387
00:15:39,980 --> 00:15:42,460
We want to concentrate in the higher-quality
388
00:15:42,460 --> 00:15:42,820
names.
389
00:15:43,660 --> 00:15:44,360
Okay, Jeff.
390
00:15:44,980 --> 00:15:47,440
Brian, in the article that you referenced at
391
00:15:47,440 --> 00:15:50,040
the beginning of the episode, you noted a
392
00:15:50,040 --> 00:15:53,380
couple of sectors that you felt might be
393
00:15:53,380 --> 00:15:57,040
attractive, semiconductors and aerospace and defense.
394
00:15:57,040 --> 00:15:58,900
Do you want to comment on why you
395
00:15:58,900 --> 00:16:00,820
selected to include those in the article?
396
00:16:01,100 --> 00:16:02,720
And by the way, we'll put the article
397
00:16:02,720 --> 00:16:04,120
in the show notes, so if you're listening
398
00:16:04,120 --> 00:16:05,400
and you want to read the whole article,
399
00:16:05,860 --> 00:16:07,640
just look at the show notes and you
400
00:16:07,640 --> 00:16:08,260
can click it.
401
00:16:09,380 --> 00:16:12,220
Yeah, so I think it's important to focus
402
00:16:12,220 --> 00:16:15,780
on growth like we just talked about with
403
00:16:15,780 --> 00:16:19,400
increasing the beta, predictable growth by staying in
404
00:16:19,400 --> 00:16:20,020
good businesses.
405
00:16:20,820 --> 00:16:22,640
But you can really also focus on the
406
00:16:22,640 --> 00:16:24,880
predictable part of that growth allocation.
407
00:16:24,880 --> 00:16:26,760
And if you want to participate in the
408
00:16:26,760 --> 00:16:29,200
upside and the downside, I think that's important.
409
00:16:29,560 --> 00:16:32,580
And it's also always important to know that
410
00:16:32,580 --> 00:16:34,360
beta is a backward-looking instrument, so it's
411
00:16:34,360 --> 00:16:36,720
not – there's no guarantee that this is
412
00:16:36,720 --> 00:16:38,700
going to hold true on any given day,
413
00:16:38,840 --> 00:16:41,580
month, week, quarter, whatever your timeframe is, right?
414
00:16:41,840 --> 00:16:44,400
So I think it's also important to take
415
00:16:44,400 --> 00:16:49,100
stock in the current fundamental environment.
416
00:16:51,440 --> 00:16:53,380
And I've taken the approach that I think
417
00:16:53,380 --> 00:16:55,560
if we want to participate in the upside,
418
00:16:55,720 --> 00:16:56,980
we need to be more granular in the
419
00:16:56,980 --> 00:16:58,320
sectors that we think are going to outperform.
420
00:16:58,880 --> 00:17:00,160
And the way that we're going to do
421
00:17:00,160 --> 00:17:02,980
that is by expressing preferences in aerospace and
422
00:17:02,980 --> 00:17:06,560
defense through semiconductors as well as utilities.
423
00:17:06,560 --> 00:17:09,040
So the beautiful thing about that is I
424
00:17:09,040 --> 00:17:11,960
can take more risk in those sectors that
425
00:17:11,960 --> 00:17:16,119
have higher betas by allocating to something very
426
00:17:16,119 --> 00:17:17,460
predictable like utilities.
427
00:17:17,920 --> 00:17:19,520
That's bringing down my beta at the same
428
00:17:19,520 --> 00:17:22,440
time, so you can control your beta in
429
00:17:22,440 --> 00:17:22,980
that manner.
430
00:17:23,220 --> 00:17:24,859
You don't have to just put all your
431
00:17:24,859 --> 00:17:25,760
chips in front of the table.
432
00:17:25,900 --> 00:17:29,280
You can massage it a little bit, I
433
00:17:29,280 --> 00:17:29,460
guess.
434
00:17:30,120 --> 00:17:32,320
So why do I think aerospace, defense, and
435
00:17:32,320 --> 00:17:34,440
utilities are going to do well as well
436
00:17:34,440 --> 00:17:34,780
as semiconductors?
437
00:17:34,780 --> 00:17:37,020
I think semiconductors is the modern-day oil,
438
00:17:37,380 --> 00:17:38,520
and what do I mean by that?
439
00:17:39,040 --> 00:17:40,580
Most of them are manufactured overseas.
440
00:17:41,120 --> 00:17:43,440
In the 70s and the 80s, we had
441
00:17:43,440 --> 00:17:44,080
an oil embargo.
442
00:17:44,500 --> 00:17:47,820
Most of our oil came from the Middle
443
00:17:47,820 --> 00:17:48,140
East.
444
00:17:48,500 --> 00:17:50,080
What did really well during that time?
445
00:17:50,140 --> 00:17:52,660
Well, domestic oil producers did exceptionally well.
446
00:17:52,660 --> 00:17:56,300
So by the similar logic, you would think
447
00:17:56,300 --> 00:18:01,580
that semiconductors, which are pivotal for our high
448
00:18:01,580 --> 00:18:05,580
-tech technology companies and our military, would benefit
449
00:18:05,580 --> 00:18:10,640
under any kind of geopolitical or domestic political
450
00:18:10,640 --> 00:18:12,800
situation that we're going through today.
451
00:18:13,040 --> 00:18:15,800
You've already seen that a lot of the
452
00:18:15,800 --> 00:18:18,220
tariffs have been scoped out in and around
453
00:18:18,220 --> 00:18:21,580
semiconductors, so they're expected to continue to benefit.
454
00:18:21,580 --> 00:18:23,760
It's the same thing with aerospace and defense.
455
00:18:24,740 --> 00:18:26,340
The administration has come out and said that
456
00:18:26,340 --> 00:18:27,540
a lot of the reason that they're doing
457
00:18:27,540 --> 00:18:30,860
this is for national security purposes.
458
00:18:31,220 --> 00:18:32,400
So what are they telling you?
459
00:18:32,880 --> 00:18:35,280
Well, they're going to continue to prioritize the
460
00:18:35,280 --> 00:18:38,460
defense industry, and you can see that as
461
00:18:38,460 --> 00:18:41,460
the Pentagon budget continues to get funded.
462
00:18:42,860 --> 00:18:45,560
So I think these are good places where
463
00:18:45,560 --> 00:18:48,360
you can have more predictability going forward despite
464
00:18:48,360 --> 00:18:50,100
larger historical betas.
465
00:18:50,100 --> 00:18:51,480
Thank you.
466
00:18:53,180 --> 00:18:54,620
All right, and one thing you didn't talk
467
00:18:54,620 --> 00:18:57,000
about in the article that I know we've
468
00:18:57,000 --> 00:19:02,260
talked about is how sometimes there can be
469
00:19:02,260 --> 00:19:09,850
a tactical consideration of using high-yield bonds
470
00:19:09,850 --> 00:19:12,610
in lieu of equity as a way to
471
00:19:12,610 --> 00:19:20,170
maintain some equity benefit, sensitivity, risk, whatever the
472
00:19:20,170 --> 00:19:20,730
right way to put it.
473
00:19:20,730 --> 00:19:23,970
But with less risk than actually being in
474
00:19:23,970 --> 00:19:24,310
equities.
475
00:19:24,890 --> 00:19:28,110
You didn't really include anything about that in
476
00:19:28,110 --> 00:19:31,590
this article, but would you offer just a
477
00:19:31,590 --> 00:19:32,690
comment or two about that?
478
00:19:33,510 --> 00:19:37,230
Yeah, I think that's an exceptionally good question.
479
00:19:37,550 --> 00:19:39,310
So when you think about your fixed income
480
00:19:39,310 --> 00:19:43,650
allocation, your very short duration should have low
481
00:19:43,650 --> 00:19:45,330
or no correlation to equities.
482
00:19:45,330 --> 00:19:49,770
Your longer investment grade correlation should be low
483
00:19:49,770 --> 00:19:50,450
to negative.
484
00:19:51,330 --> 00:19:53,490
But your high-yield allocation will have a
485
00:19:53,490 --> 00:19:55,910
positive correlation with equities.
486
00:19:56,010 --> 00:19:56,330
And why?
487
00:19:56,450 --> 00:19:59,530
Because the spread that makes up the difference
488
00:19:59,530 --> 00:20:02,690
between the yield paid on the bond and
489
00:20:02,690 --> 00:20:05,270
the treasury will move with the stock market.
490
00:20:05,270 --> 00:20:07,770
So given the fact that it's a debt
491
00:20:07,770 --> 00:20:09,370
instrument and not an equity instrument and it
492
00:20:09,370 --> 00:20:12,570
comes first on the waterfall of payments, it's
493
00:20:12,570 --> 00:20:14,890
going to be less volatile, but it is
494
00:20:14,890 --> 00:20:16,230
going to be positively correlated.
495
00:20:16,410 --> 00:20:18,930
So that's why I think this is something
496
00:20:18,930 --> 00:20:21,750
also that's unique to our team that we
497
00:20:21,750 --> 00:20:26,030
are willing to do that isn't necessarily ubiquitous
498
00:20:26,030 --> 00:20:27,230
across the industry.
499
00:20:28,070 --> 00:20:31,190
When high yield gets high enough, we'll happily
500
00:20:31,190 --> 00:20:35,150
decrease our risk in all our equity portfolio
501
00:20:35,150 --> 00:20:38,310
and take the large yield on high yield.
502
00:20:38,450 --> 00:20:40,290
Now, we did get that opportunity.
503
00:20:40,670 --> 00:20:45,250
We saw a pretty good blowout in high
504
00:20:45,250 --> 00:20:48,150
yield where we were getting close to the
505
00:20:48,150 --> 00:20:51,850
yield on long-term equity returns as we
506
00:20:51,850 --> 00:20:54,950
were getting – that we weren't getting just
507
00:20:54,950 --> 00:20:55,610
a month prior.
508
00:20:55,610 --> 00:20:58,010
So to me, that was a reasonable trade.
509
00:20:58,110 --> 00:20:59,630
I'm going to get equity-like returns and
510
00:20:59,630 --> 00:21:00,370
take less risk.
511
00:21:00,710 --> 00:21:02,330
That's something that we've done in the past.
512
00:21:02,650 --> 00:21:04,930
It's a particularly good move during high-stress
513
00:21:04,930 --> 00:21:09,430
environments because as your equity portfolio is under
514
00:21:09,430 --> 00:21:11,870
more risk, you can actually de-risk the
515
00:21:11,870 --> 00:21:15,650
portfolio and lock in some good expected forward
516
00:21:15,650 --> 00:21:16,130
returns.
517
00:21:17,030 --> 00:21:17,470
I love it.
518
00:21:17,530 --> 00:21:18,770
All right, great stuff.
519
00:21:19,250 --> 00:21:21,410
Jeff, anything you wanted to add before we
520
00:21:21,410 --> 00:21:21,890
wind down?
521
00:21:22,410 --> 00:21:24,330
No, I love your metaphor of the boat.
522
00:21:24,330 --> 00:21:27,210
Of the ship and the waves.
523
00:21:27,330 --> 00:21:28,070
It was right on.
524
00:21:28,130 --> 00:21:30,250
It makes you get a good visual of
525
00:21:30,250 --> 00:21:30,990
what you're talking about.
526
00:21:31,090 --> 00:21:31,750
Well done, Brian.
527
00:21:32,670 --> 00:21:33,390
Thank you, Jeff.
528
00:21:33,410 --> 00:21:33,710
All right.
529
00:21:34,290 --> 00:21:35,250
Thanks a lot, guys.
530
00:21:35,350 --> 00:21:37,930
Until next time, everybody, keep striving for something
531
00:21:37,930 --> 00:21:38,250
more.
532
00:21:39,450 --> 00:21:41,590
Thank you for listening to Something More with
533
00:21:41,590 --> 00:21:42,290
Chris Boyd.
534
00:21:42,610 --> 00:21:44,750
Call us for help, whether it's for financial
535
00:21:44,750 --> 00:21:48,690
planning or portfolio management, insurance concerns, or those
536
00:21:48,690 --> 00:21:50,730
quality-of-life issues that make the money
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00:21:50,730 --> 00:21:51,810
matters matter.
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00:21:51,810 --> 00:21:55,450
Whatever's on your mind, visit us at somethingmorewithchrisboyd
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00:21:55,450 --> 00:21:58,650
.com or call us toll-free at 866
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00:21:58,650 --> 00:22:01,810
-771-8901.
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00:22:02,470 --> 00:22:06,210
Or send us your questions to amr-info
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00:22:06,210 --> 00:22:08,150
at wealthenhancement.com.
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00:22:08,250 --> 00:22:10,270
You're listening to Something More with Chris Boyd
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00:22:10,270 --> 00:22:11,110
Financial Talk Show.
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00:22:11,210 --> 00:22:13,730
Wealth Enhancement Advisory Services and Jay Christopher Boyd
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00:22:13,730 --> 00:22:16,030
provide investment advice on an individual basis to
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00:22:16,030 --> 00:22:16,590
clients only.
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00:22:16,750 --> 00:22:18,730
Proper advice depends on a complete analysis of
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00:22:18,730 --> 00:22:19,930
all facts and circumstances.
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00:22:19,930 --> 00:22:22,010
The information given on this program is general
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00:22:22,010 --> 00:22:24,030
financial comments and cannot be relied upon as
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00:22:24,030 --> 00:22:25,630
pertaining to your specific situation.
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00:22:25,830 --> 00:22:27,810
Wealth Enhancement Group cannot guarantee that using the
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00:22:27,810 --> 00:22:29,810
information from this show will generate profits or
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00:22:29,810 --> 00:22:30,930
ensure freedom from loss.
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00:22:31,110 --> 00:22:33,270
Listeners should consult their own financial advisors or
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00:22:33,270 --> 00:22:35,390
conduct their own due diligence before making any
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00:22:35,390 --> 00:22:36,150
financial decisions.
00:00:00,460 --> 00:00:02,940
Welcome to Something More with Chris Boyd.
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00:00:03,300 --> 00:00:06,120
Chris Boyd is a certified financial planner, practitioner,
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00:00:06,340 --> 00:00:09,080
and senior vice president, financial advisor at Wealth
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00:00:09,080 --> 00:00:11,740
Enhancement Group, one of the nation's largest registered
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00:00:11,740 --> 00:00:12,780
investment advisors.
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00:00:13,320 --> 00:00:15,219
We call it Something More because we'd like
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00:00:15,219 --> 00:00:17,340
to talk not only about those important dollar
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00:00:17,340 --> 00:00:19,520
and cents issues, but also the quality of
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life issues that make the money matters matter.
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Here he is, your fulfillment facilitator, your partner
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00:00:25,720 --> 00:00:28,860
in prosperity, advising clients on Cape Cod and
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across the country.
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Here's your host, Jay Christopher Boyd.
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Welcome and thank you for being with us
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for another episode of Something More with Chris
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Boyd.
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I'm here with Jeff Perry, who is my
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regular co-host, and Brian Regan, who is,
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we're off with the AMR team of Wealth
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Enhancement Group, and Brian is our senior portfolio
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manager, always giving great perspective on market conditions
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and economic circumstances and how we might want
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to navigate that with the way we do
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our investing.
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And Brian, you recently had a great article
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that you posted or had published through Retirement
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Daily on thestreet.com, a great topic for
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us to talk about because markets have been
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quite volatile over the last couple of months
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with tariffs are on, tariffs are off, well,
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90 days anyway.
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And then, well, we've got all these different
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sort of variables coming in, you know.
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So how is an investor to navigate these
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challenging various possible circumstances?
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So maybe you can walk us through.
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How should investors be thinking about these circumstances?
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Yeah, thanks for having me, guys.
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It's a pleasure to be here.
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I really like doing this.
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I think it's always fun when we have
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good discussions.
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So if you guys are familiar, Chris, I
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know you are, you own a boat.
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If you're familiar with the Atlantic Ocean or
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Cape Cod Bay at all, you know that
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the winds can change unexpectedly, and before you
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know it, you're in eight-foot surf waves
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on a 20-foot boat.
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And that's basically what I feel like has
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happened in the economy in the last couple
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months, right?
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Now, it doesn't necessarily mean that you're going
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to sink, and I think that's the metaphor
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that I use at the beginning of this
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article.
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How do we position, how do we drive
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our financial boat in order to get through
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difficult times?
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And as you guys know, that's how we
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think about asset allocation.
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We're not static with our approach.
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We do what we call active allocation, which
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typically means that we're going to reconsider the
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asset allocation every quarter and make changes subsequently.
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So this article was really about how we
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approach the new situation and what we did
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about it.
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So with that preamble, what did we do?
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It was a difficult situation.
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I thought that it was a very binary
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situation.
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We did this exercise at the Wealth Enhancement
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Group where we were trying to game out
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different scenarios that could happen, and the more
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and more I thought about it, the more
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and more I realized that there's really only
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two scenarios.
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This tariff situation continues to be bad, and
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we have a recession, and the markets go
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down pretty good.
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Or we start to reverse everything we've done.
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And to my pleasure, that's the tact that
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has been going on so far.
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But I think when you think about asset
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allocation as a whole, I think it's a
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good idea to think about your duration and
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your fixed income positioning first.
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And the reason for that is because the
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yields and yield curves will change what's going
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to happen in the equity market.
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So it's a good idea to get a,
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where am I comfortable with my fixed income
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position?
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And then contrast that with how you want
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to position your equity portfolio.
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So when we started with the fixed income
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portfolio, there was a lot of questions right
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at the beginning.
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Tariffs are depressionary, and they depress the market,
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but they depress growth, but they're also inflationary
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at the same time.
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So what does that mean?
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Well, it means the longer end of the
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curve should probably come down because of less
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growth, and it means the shorter end of
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the curve should probably go up because of
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inflation concerns.
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And that means either a flattening curve or
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even an inverted curve again.
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So you couple that with the fact that
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we might have issues with bond vigilantes, foreign
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currencies, foreign countries deciding they might want to
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put the U.S. Treasuries in the penalty
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box.
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Slowing imports, which you might not think that
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should affect the Treasury market, but the United
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States exports dollars, and those dollars end up
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being recycled into U.S. dollar denominated assets.
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So less imports may mean less capital availability
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to buy things like Treasuries.
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And what if inflation expectations rose due to
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increased taxes?
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That's ultimately the big one.
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So when you put that all together, I
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had no feeling or no confidence that I
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could make a judgment on where the long
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end of the Treasury curve was going to
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go because you have all these inflationary and
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technical factors, but you also have the fact
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that you would expect growth to slow.
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So what we expected was a very, very
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volatile Treasury market, and that has been what
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we've had over the last month.
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So with that analysis, the decision was to
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stay very short in investment grade bonds in
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our fixed income portfolio.
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Maybe elaborate on when you describe the prospects
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of a flat or a flattening or possibly
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even inverted yield curve, why that gives merit
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to the idea of emphasizing more on the
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short end of the yield curve, shorter term
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bonds.
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Are they benefited in that circumstance?
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Yeah, I mean, I don't know if that's
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necessarily going to be the case, but let's
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take that.
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Let's take that as the base case, right?
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That we're going to have some kind of
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inverted yield curve, which means the shorter end
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of the curve, which takes less interest rate
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risk.
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There's less risk in the shorter end of
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the curve is going to pay a higher
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yield.
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That's as close as a free lunch as
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you're going to get in this business.
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So you're going to get paid a higher
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yield and you're not going to take as
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much risk.
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The benefit of an inverted yield curve is
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that process of the longer end coming down
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could be beneficial.
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You could get a capital gain from that
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as interest rates fall.
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But I think what I struggled with is
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it's tough to decide because of the technical
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factors that I mentioned, like bond vigilantes or
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foreign countries holding the U.S. government accountable
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or increasing deficits or slowing imports.
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All those things could make it so that
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expectation of a falling longer term treasury may
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not happen.
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And that has not happened, right?
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At least over here in the last couple
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of months.
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So, you know, either way, I want to
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be short on the curve.
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I don't think that risk is worth it.
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And the benefits, you think, in terms of
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the amount of disparity and what you're getting
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further out on the yield curve versus the
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shorter end, you think that the benefits outweigh
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the risks, essentially?
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So let's just take a money market fund,
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right?
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I'm getting four and a quarter.
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If I buy a 10-year treasury today,
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I'm getting 460, but that's high compared to
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how it's been in the last month or
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so, right?
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So I was getting closer to four and
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a quarter.
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So I could take very little interest rate
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risk and get four and a quarter, or
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I could take a lot of interest rate
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risk and get four and a quarter.
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That math is getting more attractive for the
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00:08:25,340 --> 00:08:27,860
longer term every day that ticks by here
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in recent days.
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00:08:30,080 --> 00:08:31,900
But the math just didn't make sense.
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00:08:31,900 --> 00:08:33,799
You want to get paid for more interest
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rate risk, which is why the yield curve
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is typically a little steep.
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You should get a little bit of a
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00:08:40,760 --> 00:08:43,780
liquidity premium for holding longer term bonds.
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And just for our listeners, we're recording our
208
00:08:46,760 --> 00:08:51,100
conversation on May 22nd in case things change
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00:08:51,100 --> 00:08:52,620
materially in the next few days.
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00:08:53,080 --> 00:08:55,280
It's important to timestamp everything these days.
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00:08:55,460 --> 00:08:56,500
Yeah, just in case.
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00:08:56,500 --> 00:08:59,000
Well, so that gives us a flavor for
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00:08:59,000 --> 00:09:02,760
how you're thinking about bond positioning.
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00:09:04,220 --> 00:09:07,720
How are you thinking about positioning stocks?
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00:09:08,360 --> 00:09:12,600
And as you talked about, we're asset allocators.
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00:09:12,600 --> 00:09:17,240
We do believe in long-term investment positioning,
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00:09:17,480 --> 00:09:19,960
but we also, on the edges, like to
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00:09:19,960 --> 00:09:23,140
do some modest tactical adjustments.
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00:09:26,020 --> 00:09:30,460
We're not trying to time the markets and
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00:09:30,460 --> 00:09:33,340
jump in and out with our equity exposure.
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But there are things we do to try
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00:09:35,660 --> 00:09:37,460
to be responsive to what's happening in the
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00:09:37,460 --> 00:09:37,980
world around us.
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00:09:38,100 --> 00:09:39,960
So how does that work its way into
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00:09:39,960 --> 00:09:41,780
your thoughts around equities today?
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00:09:43,520 --> 00:09:45,260
Yeah, it's a great setup, Chris.
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00:09:45,420 --> 00:09:47,040
And I think that's important to know that
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00:09:47,040 --> 00:09:49,380
these are not wholesale changes.
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00:09:49,380 --> 00:09:51,480
We're not getting far away from people's risk
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00:09:51,480 --> 00:09:51,880
profiles.
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00:09:51,880 --> 00:09:54,880
We're trying to make active decisions within people's
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risk profiles.
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00:09:56,000 --> 00:09:57,960
And ultimately, the risk profile is going to
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00:09:57,960 --> 00:10:00,520
decide your, more or less, your long-term
235
00:10:00,520 --> 00:10:01,040
performance.
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00:10:01,820 --> 00:10:04,500
So I think we're a little unique in
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00:10:04,500 --> 00:10:07,780
that we don't silo our thinking with fixed
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00:10:07,780 --> 00:10:08,780
income and equity.
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00:10:09,020 --> 00:10:10,180
I think that's very common.
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00:10:10,360 --> 00:10:12,500
If you talk to other allocators, they'll have
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00:10:12,500 --> 00:10:15,040
whole separate teams that think about fixed income,
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00:10:15,560 --> 00:10:17,020
whole separate teams that think about equity.
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00:10:17,020 --> 00:10:21,180
Even in the home office at WEG, that's
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00:10:21,180 --> 00:10:22,820
generally how it's set up.
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00:10:24,920 --> 00:10:26,220
And that's fine.
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00:10:26,300 --> 00:10:28,220
I'm sure there's good reason for that.
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It is the norm.
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00:10:29,940 --> 00:10:31,600
We're a little unique in that I think
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00:10:31,600 --> 00:10:34,540
that you need to consider your duration position
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when you make your equity position.
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And since we're short in duration for fixed
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income for all the reasons that we just
253
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talked about, I want to be a little
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bit long in my beta.
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So what does that mean?
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Beta is a measure of relative volatility versus
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the market.
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So if I own a stock with a
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beta of 1.2, well, it's 20%
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more volatile than the S&P 500.
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That's a simple way of thinking about it.
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It's important to note that that's based on
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backward-looking data.
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So even if you look at a one
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-year beta or a three-year beta or
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a five-year beta, they'll be different.
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But quantitatively, this is a reasonable way to
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think about positioning your portfolio.
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But I also think you need to do
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it fundamentally, and I'll get into that in
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a minute.
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So why do I think you need to
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take more beta exposure if you're very short
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in duration?
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Well, if interest rates fall, right, longer-term
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interest rates fall, I won't get a tailwind
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from my fixed income because I'm very short
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in duration.
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It will be minimally affected.
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I'll get my coupon and that's it.
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But the cash flows on my equity will
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be discounted at a lower rate, which means
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that stocks should go higher.
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So even though I'm not getting much from
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my fixed income, I'll be getting a benefit
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from my equity, and that's the great thing
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about diversification, right?
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You don't necessarily hit it out of the
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park in all aspects because you're not really
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diversified.
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But what you want to do is you
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want to balance the risks so that you
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can do well under a lot of environments.
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Now, what if interest rates rise?
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My fixed income won't suffer, right?
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But under that same logic, my equity will
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00:12:13,040 --> 00:12:15,460
likely be hurt, but at least I'll be
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buffered a little bit by my fixed income.
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Both of them won't be hurt at the
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same time.
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Now, if interest rates rise because growth increases,
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well, then I'll probably benefit on both sides,
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right?
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I won't get hurt on my fixed income
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00:12:27,960 --> 00:12:32,640
as interest rates rise, but the earnings expectations
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00:12:32,640 --> 00:12:35,100
on my equity will probably go up, so
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00:12:35,100 --> 00:12:35,740
I'll win there.
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00:12:35,740 --> 00:12:38,800
So under falling interest rates, under rising interest
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00:12:38,800 --> 00:12:41,520
rates, I think I'm better off if I
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have more beta during short duration.
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Now, of course, the downside to this would
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be what if rates fall due to decreased
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economic growth?
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00:12:51,220 --> 00:12:52,460
I could be challenged on both sides.
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00:12:52,560 --> 00:12:55,240
I'm not going to get the benefit on
316
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the income side, and I'm going to get
317
00:13:00,380 --> 00:13:01,740
hurt on my equity side because my earnings
318
00:13:01,740 --> 00:13:03,060
expectation is going to go down.
319
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Now, when I say I'm not going to
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get my benefit on my fixed income side,
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00:13:07,400 --> 00:13:08,700
I'm not going to get a huge capital
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00:13:08,700 --> 00:13:10,420
gain, but I'm also not going to lose
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anything.
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So I think this is the best way
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to position for both the upside and the
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downside, and since we're in this binary situation,
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that's something that you need to consider, right?
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I want to protect on the downside but
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00:13:23,580 --> 00:13:25,220
also participate in the upside, and that's the
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delicate balance that we're doing here.
331
00:13:28,140 --> 00:13:31,020
Now, if you really want to avoid that
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00:13:31,020 --> 00:13:34,940
last scenario, right, where interest rates fall due
333
00:13:34,940 --> 00:13:39,540
to decreased economic growth, then I need stocks
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that will grow during all environments.
335
00:13:41,140 --> 00:13:42,780
So even if the economy falters a little
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bit, I want stocks that will continue to
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grow.
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00:13:45,280 --> 00:13:48,040
So I think that eliminates small cap, for
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00:13:48,040 --> 00:13:50,200
example, and that's one of the reasons why
340
00:13:50,200 --> 00:13:52,760
we eliminated small cap in our portfolio.
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00:13:52,940 --> 00:13:54,100
I think they're going to be more economically
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00:13:54,100 --> 00:13:54,500
sensitive.
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00:13:55,260 --> 00:13:57,260
Now, that does bode well for some of
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the biggest, largest stocks with minimal debt that
345
00:14:00,000 --> 00:14:05,160
are capital light asset allocations that have subscription
346
00:14:05,160 --> 00:14:09,120
predictable revenue growth, or in other words, predictability
347
00:14:09,120 --> 00:14:10,880
with growth, as you guys know that I
348
00:14:10,880 --> 00:14:12,400
always preach, right?
349
00:14:12,520 --> 00:14:13,520
It's my favorite thing.
350
00:14:13,520 --> 00:14:16,200
So you can look at high-quality businesses,
351
00:14:16,620 --> 00:14:18,620
and you could do it that way, right?
352
00:14:18,660 --> 00:14:20,560
And we've expressed that in ETF mutual fund
353
00:14:20,560 --> 00:14:25,400
portfolios through an allocation in MGK, which is
354
00:14:25,400 --> 00:14:28,280
a Vanguard mega cap growth index, and the
355
00:14:28,280 --> 00:14:31,480
top names include Apple and Microsoft, Nvidia, Amazon,
356
00:14:31,700 --> 00:14:33,200
Meta, Broadcom, and Eli Lilly.
357
00:14:33,360 --> 00:14:36,260
These are all blue-chip household names.
358
00:14:37,320 --> 00:14:39,040
Another way that you could increase your beta
359
00:14:39,040 --> 00:14:40,160
and you could do it with a smaller
360
00:14:40,160 --> 00:14:44,020
allocation in your portfolio is by doing more
361
00:14:44,020 --> 00:14:44,800
speculative investments.
362
00:14:45,240 --> 00:14:48,100
So, for example, the ARK Innovation Fund has
363
00:14:48,100 --> 00:14:50,220
a beta of two, so I could allocate,
364
00:14:50,580 --> 00:14:52,200
in theory, a whole lot less to that
365
00:14:52,200 --> 00:14:53,540
and still get my beta up.
366
00:14:53,980 --> 00:14:56,260
The problem with that is I don't think
367
00:14:56,260 --> 00:14:57,460
that's reliable growth.
368
00:14:58,060 --> 00:14:59,860
I don't think the companies in there are
369
00:14:59,860 --> 00:15:01,760
as solid, so that's why I choose not
370
00:15:01,760 --> 00:15:02,320
to do that.
371
00:15:02,880 --> 00:15:07,040
The top names there include Tesla, Roku, Roblox,
372
00:15:07,260 --> 00:15:07,880
Coinbase.
373
00:15:09,280 --> 00:15:11,460
So that might be a matter of preference
374
00:15:11,460 --> 00:15:12,600
on how you want to get your beta
375
00:15:12,600 --> 00:15:14,580
up, but for me and my clients, I'd
376
00:15:14,580 --> 00:15:17,920
rather focus on the higher-quality companies.
377
00:15:18,980 --> 00:15:20,640
Is there a difference in – oh, sorry,
378
00:15:20,700 --> 00:15:22,000
just real quick on the follow-up.
379
00:15:22,000 --> 00:15:24,000
Is there a difference in concentration in the
380
00:15:24,000 --> 00:15:27,540
way those two portfolios approach their selections?
381
00:15:28,100 --> 00:15:30,680
Well, they're both fairly concentrated, so that's something
382
00:15:30,680 --> 00:15:33,200
that you want to keep an eye out
383
00:15:33,200 --> 00:15:35,420
for whenever you get more granular in your
384
00:15:35,420 --> 00:15:36,120
asset allocation.
385
00:15:36,500 --> 00:15:39,200
But in this case, we're actually trying to
386
00:15:39,200 --> 00:15:39,900
look for that, right?
387
00:15:39,980 --> 00:15:42,460
We want to concentrate in the higher-quality
388
00:15:42,460 --> 00:15:42,820
names.
389
00:15:43,660 --> 00:15:44,360
Okay, Jeff.
390
00:15:44,980 --> 00:15:47,440
Brian, in the article that you referenced at
391
00:15:47,440 --> 00:15:50,040
the beginning of the episode, you noted a
392
00:15:50,040 --> 00:15:53,380
couple of sectors that you felt might be
393
00:15:53,380 --> 00:15:57,040
attractive, semiconductors and aerospace and defense.
394
00:15:57,040 --> 00:15:58,900
Do you want to comment on why you
395
00:15:58,900 --> 00:16:00,820
selected to include those in the article?
396
00:16:01,100 --> 00:16:02,720
And by the way, we'll put the article
397
00:16:02,720 --> 00:16:04,120
in the show notes, so if you're listening
398
00:16:04,120 --> 00:16:05,400
and you want to read the whole article,
399
00:16:05,860 --> 00:16:07,640
just look at the show notes and you
400
00:16:07,640 --> 00:16:08,260
can click it.
401
00:16:09,380 --> 00:16:12,220
Yeah, so I think it's important to focus
402
00:16:12,220 --> 00:16:15,780
on growth like we just talked about with
403
00:16:15,780 --> 00:16:19,400
increasing the beta, predictable growth by staying in
404
00:16:19,400 --> 00:16:20,020
good businesses.
405
00:16:20,820 --> 00:16:22,640
But you can really also focus on the
406
00:16:22,640 --> 00:16:24,880
predictable part of that growth allocation.
407
00:16:24,880 --> 00:16:26,760
And if you want to participate in the
408
00:16:26,760 --> 00:16:29,200
upside and the downside, I think that's important.
409
00:16:29,560 --> 00:16:32,580
And it's also always important to know that
410
00:16:32,580 --> 00:16:34,360
beta is a backward-looking instrument, so it's
411
00:16:34,360 --> 00:16:36,720
not – there's no guarantee that this is
412
00:16:36,720 --> 00:16:38,700
going to hold true on any given day,
413
00:16:38,840 --> 00:16:41,580
month, week, quarter, whatever your timeframe is, right?
414
00:16:41,840 --> 00:16:44,400
So I think it's also important to take
415
00:16:44,400 --> 00:16:49,100
stock in the current fundamental environment.
416
00:16:51,440 --> 00:16:53,380
And I've taken the approach that I think
417
00:16:53,380 --> 00:16:55,560
if we want to participate in the upside,
418
00:16:55,720 --> 00:16:56,980
we need to be more granular in the
419
00:16:56,980 --> 00:16:58,320
sectors that we think are going to outperform.
420
00:16:58,880 --> 00:17:00,160
And the way that we're going to do
421
00:17:00,160 --> 00:17:02,980
that is by expressing preferences in aerospace and
422
00:17:02,980 --> 00:17:06,560
defense through semiconductors as well as utilities.
423
00:17:06,560 --> 00:17:09,040
So the beautiful thing about that is I
424
00:17:09,040 --> 00:17:11,960
can take more risk in those sectors that
425
00:17:11,960 --> 00:17:16,119
have higher betas by allocating to something very
426
00:17:16,119 --> 00:17:17,460
predictable like utilities.
427
00:17:17,920 --> 00:17:19,520
That's bringing down my beta at the same
428
00:17:19,520 --> 00:17:22,440
time, so you can control your beta in
429
00:17:22,440 --> 00:17:22,980
that manner.
430
00:17:23,220 --> 00:17:24,859
You don't have to just put all your
431
00:17:24,859 --> 00:17:25,760
chips in front of the table.
432
00:17:25,900 --> 00:17:29,280
You can massage it a little bit, I
433
00:17:29,280 --> 00:17:29,460
guess.
434
00:17:30,120 --> 00:17:32,320
So why do I think aerospace, defense, and
435
00:17:32,320 --> 00:17:34,440
utilities are going to do well as well
436
00:17:34,440 --> 00:17:34,780
as semiconductors?
437
00:17:34,780 --> 00:17:37,020
I think semiconductors is the modern-day oil,
438
00:17:37,380 --> 00:17:38,520
and what do I mean by that?
439
00:17:39,040 --> 00:17:40,580
Most of them are manufactured overseas.
440
00:17:41,120 --> 00:17:43,440
In the 70s and the 80s, we had
441
00:17:43,440 --> 00:17:44,080
an oil embargo.
442
00:17:44,500 --> 00:17:47,820
Most of our oil came from the Middle
443
00:17:47,820 --> 00:17:48,140
East.
444
00:17:48,500 --> 00:17:50,080
What did really well during that time?
445
00:17:50,140 --> 00:17:52,660
Well, domestic oil producers did exceptionally well.
446
00:17:52,660 --> 00:17:56,300
So by the similar logic, you would think
447
00:17:56,300 --> 00:18:01,580
that semiconductors, which are pivotal for our high
448
00:18:01,580 --> 00:18:05,580
-tech technology companies and our military, would benefit
449
00:18:05,580 --> 00:18:10,640
under any kind of geopolitical or domestic political
450
00:18:10,640 --> 00:18:12,800
situation that we're going through today.
451
00:18:13,040 --> 00:18:15,800
You've already seen that a lot of the
452
00:18:15,800 --> 00:18:18,220
tariffs have been scoped out in and around
453
00:18:18,220 --> 00:18:21,580
semiconductors, so they're expected to continue to benefit.
454
00:18:21,580 --> 00:18:23,760
It's the same thing with aerospace and defense.
455
00:18:24,740 --> 00:18:26,340
The administration has come out and said that
456
00:18:26,340 --> 00:18:27,540
a lot of the reason that they're doing
457
00:18:27,540 --> 00:18:30,860
this is for national security purposes.
458
00:18:31,220 --> 00:18:32,400
So what are they telling you?
459
00:18:32,880 --> 00:18:35,280
Well, they're going to continue to prioritize the
460
00:18:35,280 --> 00:18:38,460
defense industry, and you can see that as
461
00:18:38,460 --> 00:18:41,460
the Pentagon budget continues to get funded.
462
00:18:42,860 --> 00:18:45,560
So I think these are good places where
463
00:18:45,560 --> 00:18:48,360
you can have more predictability going forward despite
464
00:18:48,360 --> 00:18:50,100
larger historical betas.
465
00:18:50,100 --> 00:18:51,480
Thank you.
466
00:18:53,180 --> 00:18:54,620
All right, and one thing you didn't talk
467
00:18:54,620 --> 00:18:57,000
about in the article that I know we've
468
00:18:57,000 --> 00:19:02,260
talked about is how sometimes there can be
469
00:19:02,260 --> 00:19:09,850
a tactical consideration of using high-yield bonds
470
00:19:09,850 --> 00:19:12,610
in lieu of equity as a way to
471
00:19:12,610 --> 00:19:20,170
maintain some equity benefit, sensitivity, risk, whatever the
472
00:19:20,170 --> 00:19:20,730
right way to put it.
473
00:19:20,730 --> 00:19:23,970
But with less risk than actually being in
474
00:19:23,970 --> 00:19:24,310
equities.
475
00:19:24,890 --> 00:19:28,110
You didn't really include anything about that in
476
00:19:28,110 --> 00:19:31,590
this article, but would you offer just a
477
00:19:31,590 --> 00:19:32,690
comment or two about that?
478
00:19:33,510 --> 00:19:37,230
Yeah, I think that's an exceptionally good question.
479
00:19:37,550 --> 00:19:39,310
So when you think about your fixed income
480
00:19:39,310 --> 00:19:43,650
allocation, your very short duration should have low
481
00:19:43,650 --> 00:19:45,330
or no correlation to equities.
482
00:19:45,330 --> 00:19:49,770
Your longer investment grade correlation should be low
483
00:19:49,770 --> 00:19:50,450
to negative.
484
00:19:51,330 --> 00:19:53,490
But your high-yield allocation will have a
485
00:19:53,490 --> 00:19:55,910
positive correlation with equities.
486
00:19:56,010 --> 00:19:56,330
And why?
487
00:19:56,450 --> 00:19:59,530
Because the spread that makes up the difference
488
00:19:59,530 --> 00:20:02,690
between the yield paid on the bond and
489
00:20:02,690 --> 00:20:05,270
the treasury will move with the stock market.
490
00:20:05,270 --> 00:20:07,770
So given the fact that it's a debt
491
00:20:07,770 --> 00:20:09,370
instrument and not an equity instrument and it
492
00:20:09,370 --> 00:20:12,570
comes first on the waterfall of payments, it's
493
00:20:12,570 --> 00:20:14,890
going to be less volatile, but it is
494
00:20:14,890 --> 00:20:16,230
going to be positively correlated.
495
00:20:16,410 --> 00:20:18,930
So that's why I think this is something
496
00:20:18,930 --> 00:20:21,750
also that's unique to our team that we
497
00:20:21,750 --> 00:20:26,030
are willing to do that isn't necessarily ubiquitous
498
00:20:26,030 --> 00:20:27,230
across the industry.
499
00:20:28,070 --> 00:20:31,190
When high yield gets high enough, we'll happily
500
00:20:31,190 --> 00:20:35,150
decrease our risk in all our equity portfolio
501
00:20:35,150 --> 00:20:38,310
and take the large yield on high yield.
502
00:20:38,450 --> 00:20:40,290
Now, we did get that opportunity.
503
00:20:40,670 --> 00:20:45,250
We saw a pretty good blowout in high
504
00:20:45,250 --> 00:20:48,150
yield where we were getting close to the
505
00:20:48,150 --> 00:20:51,850
yield on long-term equity returns as we
506
00:20:51,850 --> 00:20:54,950
were getting – that we weren't getting just
507
00:20:54,950 --> 00:20:55,610
a month prior.
508
00:20:55,610 --> 00:20:58,010
So to me, that was a reasonable trade.
509
00:20:58,110 --> 00:20:59,630
I'm going to get equity-like returns and
510
00:20:59,630 --> 00:21:00,370
take less risk.
511
00:21:00,710 --> 00:21:02,330
That's something that we've done in the past.
512
00:21:02,650 --> 00:21:04,930
It's a particularly good move during high-stress
513
00:21:04,930 --> 00:21:09,430
environments because as your equity portfolio is under
514
00:21:09,430 --> 00:21:11,870
more risk, you can actually de-risk the
515
00:21:11,870 --> 00:21:15,650
portfolio and lock in some good expected forward
516
00:21:15,650 --> 00:21:16,130
returns.
517
00:21:17,030 --> 00:21:17,470
I love it.
518
00:21:17,530 --> 00:21:18,770
All right, great stuff.
519
00:21:19,250 --> 00:21:21,410
Jeff, anything you wanted to add before we
520
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wind down?
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00:21:22,410 --> 00:21:24,330
No, I love your metaphor of the boat.
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00:21:24,330 --> 00:21:27,210
Of the ship and the waves.
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00:21:27,330 --> 00:21:28,070
It was right on.
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00:21:28,130 --> 00:21:30,250
It makes you get a good visual of
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00:21:30,250 --> 00:21:30,990
what you're talking about.
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00:21:31,090 --> 00:21:31,750
Well done, Brian.
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00:21:32,670 --> 00:21:33,390
Thank you, Jeff.
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00:21:33,410 --> 00:21:33,710
All right.
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00:21:34,290 --> 00:21:35,250
Thanks a lot, guys.
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00:21:35,350 --> 00:21:37,930
Until next time, everybody, keep striving for something
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00:21:37,930 --> 00:21:38,250
more.
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00:21:39,450 --> 00:21:41,590
Thank you for listening to Something More with
533
00:21:41,590 --> 00:21:42,290
Chris Boyd.
534
00:21:42,610 --> 00:21:44,750
Call us for help, whether it's for financial
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00:21:44,750 --> 00:21:48,690
planning or portfolio management, insurance concerns, or those
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00:21:48,690 --> 00:21:50,730
quality-of-life issues that make the money
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00:21:50,730 --> 00:21:51,810
matters matter.
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00:21:51,810 --> 00:21:55,450
Whatever's on your mind, visit us at somethingmorewithchrisboyd
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00:21:55,450 --> 00:21:58,650
.com or call us toll-free at 866
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00:21:58,650 --> 00:22:01,810
-771-8901.
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00:22:02,470 --> 00:22:06,210
Or send us your questions to amr-info
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00:22:06,210 --> 00:22:08,150
at wealthenhancement.com.
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00:22:08,250 --> 00:22:10,270
You're listening to Something More with Chris Boyd
544
00:22:10,270 --> 00:22:11,110
Financial Talk Show.
545
00:22:11,210 --> 00:22:13,730
Wealth Enhancement Advisory Services and Jay Christopher Boyd
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00:22:13,730 --> 00:22:16,030
provide investment advice on an individual basis to
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00:22:16,030 --> 00:22:16,590
clients only.
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00:22:16,750 --> 00:22:18,730
Proper advice depends on a complete analysis of
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00:22:18,730 --> 00:22:19,930
all facts and circumstances.
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00:22:19,930 --> 00:22:22,010
The information given on this program is general
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00:22:22,010 --> 00:22:24,030
financial comments and cannot be relied upon as
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00:22:24,030 --> 00:22:25,630
pertaining to your specific situation.
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00:22:25,830 --> 00:22:27,810
Wealth Enhancement Group cannot guarantee that using the
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00:22:27,810 --> 00:22:29,810
information from this show will generate profits or
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00:22:29,810 --> 00:22:30,930
ensure freedom from loss.
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00:22:31,110 --> 00:22:33,270
Listeners should consult their own financial advisors or
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00:22:33,270 --> 00:22:35,390
conduct their own due diligence before making any
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00:22:35,390 --> 00:22:36,150
financial decisions.
