Owner Resource Group is pleased to provide the following wealth management insights from Round Table Wealth Management
First Quarter 2022 Review
Before we dive into our quarterly letter, we would like to express our ongoing concern and hope for a peaceful settlement for the people of Ukraine. May our world leaders find resolutions to fortify a lasting peace.
Capital markets retreated in the first quarter, not at an alarming rate, but certainly a deviation from the pattern of positive quarters investors have grown to appreciate. Of the last 50 quarters since the Great Financial Crisis, only 8 quarters generated a negative return and nearly all these quarterly drawdowns were recouped within the following quarter. The most important factor impacting markets during the first quarter was the prospect of continuing rising inflation and the certainty of rising interest rates. While the equity markets rallied into quarter-end, Federal Reserve Governor Brainard (historically a very dovish member of the FOMC) and subsequently the Fed’s minutes stated that it may “rapidly” reduce its balance sheet starting in May, which fostered a selloff in both equity and bond markets.
Our portfolio positioning during the quarter increased exposure to liquid hedged equity, reduced growth-style investments and further reduced longer-duration fixed income. We maintained exposure to commodities, which have performed admirably this year. Recent inflation figures suggest the increase in consumer prices is not over and the Federal Reserve is nearly certain to continue its rate increase strategy. Chairperson Powell mentioned the Fed’s ability to increase rates by 50 basis points (similar to when he discussed a 25 bps increase prior to the official March announcement), which could be viewed as Powell giving the market “long headlights” to see the rate path ahead. Since the market lows in early-March, growth-style valuations have increased back to significant premium valuation levels. Combined with the path of interest rates, increasing inflation and the ongoing conflict in Ukraine, we are maintaining our current allocations with a greater emphasis on hedged equities.