What were our major house calls so far and how did they benefit our clients?
Updated: Sep 8
On January 14th, 2022 our investment team decided to make a major house call to go risk off by reducing equity allocations across all risk profiles which was then allocated to short duration bonds, money markets, and cash funds. This decision was made due to the Dow Jones reaching our upper limit target and based on technical analysis we predicted the possibility of a downward market. We anticipated an upcoming expiry/withdrawal of fiscal and monetary stimulus, the projected rise in interest rates, elevated inflation, and Covid-19 variant worries to weigh on markets.
Subsequently on February 14th, 2022 Russia declared war on Ukraine causing a ripple through international markets. Inflation had become an issue across the world due to the energy crisis, supply chain disruption and weakening economic data across the world. On March 16th, 2022 the Fed approved a 0.25 percentage point rate hike, the first increase since December 2018. Since then it has increased to 2.50% as of July 28th, 2022 in attempt to curb inflation. In summary, 2022 has not been kind to the markets but we were prepared for this by taking the risk off approach at the start of the year. However, where there is a downward market there is also an opportunity. This is why it is important to seek professional financial guidance in a time of uncertainty and have a plan of action that does not involve timing the market.
On the 14th of July, we decided to go back to neutral allocation by increasing our equity exposure due to the Dow Jones hitting our -15% target. At this point, we were of the view that a lot of bad news had already been priced into the market, from high and persistent inflation to monetary tightening to war, while still living in a pandemic. It would be difficult to catch the exact bottom of the markets. This is why we made a tactical move to ‘take profit’ from our risk-off in January 2022 with a better entry point in July 2022. Nevertheless, we do not preclude the possibility of the market going down further, as markets continue to be sensitive to the release of economic data and the flow of news. If the market does go down further, to the range of -20% to -30% drawdown for the Dow, our plan is to add further to our equity allocation, overweighting equity.
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Disclaimer - Investments can go up and down and past performance is not indicative of future performance. Please seek advice from a Financial Adviser Representative before making any investment decisions.