SUMMARY. We continue to be concerned about slowing economic growth especially consumer spending weighing the potential for additional stimulus with the pending infrastructure bill making its way through congress. No doubt the latter will boost economic growth, but it may also keep inflation relatively high eroding consumers ability to spend. Since 2/3rd of the US economy is dependent on spending vs capital expenditures (which the bill targets) its effects on growth and especially consumers maybe longer to take hold and less direct/ muted. Thus, the issues on growth weigh heavily because their are signs the consumers and corporate America alike are beginning to feel the effects of inflation and prior stimulus wearing off (see Zerohedge.com). To boot the unemployment benefit boost is ending as is the moratorium on rent abatement. At this point, we continue to expect slowing growth regardless of infrastructure bill to come as we move into 2022.
INVESTMENT IMPACT. Model portfolios remain overweight small growth capitalization stocks which recently recently corrected significantly that we deem to posses superior risk/reward, compelling valuations, and are less dependent on economic growth. Many investors have chosen to gravitate to larger capitalization stocks in the short-term (technology and defensive) which we deem already rich in valuations. We remain hedged (ie holdings that go up when market falls) with higher cash/ bond levels vs model targets. We continue to expect GREATER VOLATILITY in model portfolios given the above and higher concentrated positions in the names above. Nonetheless we are hopeful on those names delivering returns that justify the risk and volatility thus the concentration. In sum, we choose to look past the short-term volatility (and underperformance in models in recent months) to seek potentially superior longer-term returns in high conviction names.
Our model portfolio performance has been updated on our website as of 7/30/21.
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