More of the Same

The election is over, a vaccine may be on its way and the world appears to believe that a return to pre-pandemic life may be imminent. If we assume that these dreams will come true within weeks or months, what should investors expect? The experience with “Goldilocks” environments is certainly mixed. One could very easily make the argument that such lofty expectations can only be met with disappointments. Equities certainly have a fair amount of good news built into current valuations. Bond yields have little room to decline further and should the positive economic prognostications prove accurate, a steepening yield curve would be difficult to dismiss.

Many portfolios are constructed with the expectation that their fixed income allocations will provide a buffer should equities disappoint. A belief based upon years of observation drawn from a long period of generally declining yields. Correlations can change. It is quite possible that the current environment is sufficiently different from what we have experienced over the last decades that many of the ingrained, learned investment behaviors will not act as expected?

My perspective is grounded in the belief that investors cannot predict future events, but being prepared for a variety of outcomes can help optimize portfolio performance. Financial advisors may look to help their clients navigate both the good and bad markets as a way to prepare for multiple outcomes. One such option is tactical equity allocations, seeking to lessen the impact from short-term down-drafts to preserve capital for compounding when the market recovers. Rather than be tied to a hard, or even strategic equity/cash split, a more tactical approach may be effective in reducing downside risk and even allow for profits since markets do not generally move in a straight line.

Jeff Landle


Chief Investment Officer at LHA