We find ourselves entering the spring of 2017 in a position to which we are not accustomed. Economic growth is trending higher, inflation is firming, unemployment is low, and wages are rising. These are all good things at current levels. It was not that long ago that thoughts of Fed rate increases were enough to cause considerable angst in financial markets. Not today. While the bond market is under some pressure as expected, returns have generally remained positive for those with broad exposure to corporate credit bonds as well as treasuries. The stock market actually expects reasonable interest rate increases and would likely be more concerned were they not to transpire. What a difference a year or two makes. The stars of growth, inflation and employment are now aligned.

 

Our asset allocation committee met earlier this week as we do the first part of every month. We have been slightly underweight our normal equity allocations for each of our investment objectives - Conservative through Aggressive Growth. We have used that underweighting to fund a little higher cash holding in portfolios. Within our equity allocations, we have shaded towards large cap, domestic companies as opposed to smaller or international stocks. Within our bond allocations, we have tended towards intermediate, investment grade corporate bonds as opposed to high yield credits. After much discussion this month, our committee decided to leave our current allocation targets unchanged. While data is certainly moving in the direction to favor equities, we are mindful of a few things. First, valuations are now elevated for stocks. Expectations for tax reform, deregulation and infrastructure spending have been priced into the market ahead of the nitty gritty detail work that is required to transform these expectations into law. While we do expect progress on all three fronts, the magnitude is unknown and unlikely to be as large as promised. Second, cyclical improvements in data are just that...cyclical. Some groundwork is already being laid for a potential slow-down in the second half of 2017. The rise in interest rates and oil prices suggest future slowing, while the high levels of confidence argue against it. As tempting as it is to chase returns, we believe some caution at these levels is wise. Third, even though interest rates are now rising, a well-diversified bond portfolio will produce enough income, we believe, to preserve positive returns. All in all, these factors led the committee to retain our current targets that slightly underweight equities and slightly overweight cash.

Tracy joined the IBERIA Wealth Advisors team in September 2010 and has 20 years of investment management experience. She has a broad background in fiduciary asset management which includes portfolio management for high net worth individuals and institutions, asset allocation policy making, investment management consulting, equity research, and equity and fixed income trading. Tracy manages client accounts across the IBERIA Wealth Advisors footprint and oversees the construction and management of IWA's two proprietary equity strategies, Dividend Focus and Growth Focus. She serves as a member of both the IWA Asset Allocation and IWA Investment Policy Committees. Tracy is a frequent speaker on economic and investment topics within the community and authors many of IWA's investment publications. She has been included twice in the Birmingham Business Journal's Table of Experts Series. Tracy graduated from the University of Alabama with a Bachelor of Science degree in finance and is a CFA Charterholder. She is a member of the CFA Institute of Alabama and has a Series 65 license. She has served as an industry mentor for the CFA Student Research Teams from both The University of Alabama and Samford University. Tracy is a past member of the Episcopal Dioceses of Alabama Finance Department and currently serves on the University of Alabama at Birmingham (UAB) Finance Department Advisory Board.

Views are as of the date above and are subject to change based on market conditions and other factors. The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

 

The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities or sectors listed.  Diversification and asset allocation do not assure a profit nor protect against loss.

 

The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested.  Past performance results are not indicative of future results.