In our April Markets in Motion™ and in our GT Suite Webinar this month, we continued our focus on crafting easy-to-understand, longer-term narratives for Fiduciaries and for Advisors and their Clients. This update is going to center specifically on changes to our positioning, as we process critical data and information from our proprietary research as well as corporate and governmental sources.

1. Some risk markets are well ahead of economic recovery, and they are mostly trading on elevated hopes of a vaccine development. Bonds and commodities remain depressed as these asset classes are “closer to the ground” than equities, meaning bonds (which look to insolvency risk in many industries, low labor participation rate and little capital investment) and commodities, which are currently correlated to massive shifts downward in transportation, construction and manufacturing) are telling us another story altogether.
   
2. Even though equity market volatility will likely stay high during this longer-than-anticipated period of uncertainty, we have begun to implement our own “re-opening” changes to our Portfolios, starting with a position in US high grade corporate credit. We are buying where the Fed and other central banks are buying, and we believe we can do so, given Credit is now giving us more yield per unit of volatility than equity. Look for us to increase our holdings in other credit areas as the bond buying continues through the next two quarters. We are also looking at certain “re-entry” sectors and regions in equity, which will take us beyond our large Quality factor holdings.
   
3. We aren’t in the “quick vaccine” camp. Even with the massive global investment, vaccines are notoriously hard to develop. We DO believe that masking, increased testing and better treatment protocols will further slow virus mortality. We are definitely more optimistic than a month ago, especially on the State-led and private testing capabilities being ramped by research universities. Duke’s research medical school collaboration in Singapore along side Hong Kong’s GenScript Biotech Corporation, just started manufacturing a new testing kit called the cPass™. While there are many COVID-19 lab-based antibody test kits commercially available, this is the first that is capable of measuring functional NAbs. Without a simple test kit, measuring NAbs requires the use of live virus, cells, highly skilled operators, and complex laboratory procedures that are generally less sensitive and require several days to obtain results. By contrast, the cPass™ can be rapidly conducted within an hour in most research or clinical labs.
   

With this month’s positioning, we initiated a position in emerging market equities, increased our position in Gold, and added exposure to high grade corporate credit on the short end.

Finally, know that all our Strategies will adapt to fundamental or rules-based, not emotional influences. We seek opportunities for solid risk adjusted returns and to preserve capital in asset market downturns.

Recent Portfolio Changes

We reduced cash equivalents and initiated a position in investment grade credit. Fed liquidity measures have back stopped high quality credits. Additionally, valuations favor credit over equities and credit tends to recover faster than equity prices.

We initiated a position in Gold. We own gold as hedge against uncertainty as the market digests unprecedented economic collapse and unprecedented stimulus.

¹ Information as of 5/19/2020. Individual account allocations may differ slightly from model allocations

² Contains international exposure

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