Global Market Commentary

March 16, 2017

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Is Your Portfolio Prepared For the New Market Environment?

The change that is underway in U.S. markets is no run-of-the-mill, short-term shift.  This is a sea-change — not business as usual.  We’re referring to the end of a thirty-year period during which interest rates were falling — a thirty-year bull market for bonds.  We believe that looking back, we’ll see that long-term U.S. government bonds peaked in July, 2016 — the end of an epic rally.

Bear in mind that the bull market in bonds was generational.  That means that many money managers and many money management firms have spent their entire careers in an environment where declining interest rates meant that bond portfolios would appreciate dependably.  As a result, most money managers and analysts have “baked in” the bond rally to their models and expectations.  We believe those models and expectations are on the verge of a significant disruption.

Of course, it’s not just bonds that are likely to suffer as that long rally ends and reverses.  There are many securities that serve as “bond proxies” — for example, the high-yielding stocks of REITs and MLPs.  The end and reversal of the generational bond rally will also likely spell trouble for these bond proxies — and for investors who have come to rely on them for income and appreciation.

For those managers and firms that have come of age thinking that falling interest rates were an irresistible force of nature, the new environment will be unexpected and unfamiliar.  It’s neither unexpected nor unfamiliar to us.  Monty Guild, the Chief Investment Officer at Guild, founded the firm in 1971 — and then navigated a rising-rate environment for more than a decade.  Our “company memory” is deep enough that we know there’s nothing new under the sun… and the coming investment environment doesn’t scare us.  We’ve seen it before, and we are prepared to thrive in it.

Investors who have income portfolios that are heavy in bonds and bond proxies such as REITs, MLPs, and high-yielding stocks may find those portfolios at risk of a decline in value in the coming rising-rate environment.

If you have a portfolio you’re concerned about, call us today to schedule a free review, and find out what risks your portfolio may be exposed to in the coming years.