TopPicks from Darren Sissons, partner and portfolio Mmanager, Campbell, Lee & Ross
FOCUS: Global and technology stocks We have seen four major systemic breaches in under 12 months. This includes the U.K., pension crisis and the failure of two U.S. banks, followed by the forced acquisition of Credit Suisse by UBS. Please recall, a systemic breach is a high-risk market event as it significantly enhances the risk of negative price spirals and cross-asset class contagion.
The risk of major systemic pain has unfortunately reared its head again. To counter that risk, the U.S. Federal Reserve increased its benchmark rate by only 0.25 per cent on March 22, 2023, when consensus estimates expected 0.50 per cent prior to the recent Credit Suisse failure. The accompanying Fed notes to the interest rate hike provided ample room for a dovish tilt if necessary.
Given the above, investors continue to operate in a tactical market, which requires active management. A well-managed buy-and-hold portfolio methodology is a proven value-creating strategy longer term. However, that strategy is not optimal during periods of heightened systemic risk and sustained market volatility. A better approach is a modified buy-and-hold strategy that includes some opportunistic trading when appropriate.
Investors are encouraged to revisit risk management protocols in light of the heightened systemic risk. Trim overweight positions, raise a cash cushion and consult your circle of experts on best practices. Equally so, heightened risk typically drives a plethora of new opportunities and investors should be open to new ideas.
Inflation remains a persistent threat. Investors should seek some exposure to sectors that benefit from inflation including commodities, staples, and pharmaceuticals with defensive business models and rising dividends. Once interest rates settle and charges relating to loan defaults moderate, financial exposure is a must. REITs round out the allocation required for the current market dynamic once higher rates are fully reflected in share prices.
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