What Keeps Financial Advisors Up at Night?

Does the banking crisis change the path for the Fed going forward? That’s what our clients want to know. In our view, the damage is already done, with the 525 basis points of rate hikes over the past year.

Between the implosion of various cryptocurrencies, the demise of the disruptive growth cohort, the collapse of bonds last year and now the implosion of a few regional banks, it seems like the Fed should pause and assess the collateral damage.

But what the Fed does and what it should do are two entirely different things. Considering recent weakness in the banking sector, the market has drastically repriced interest rate hikes.

Here are the current top questions we are getting from financial advisors: 

What changes are you making to your exchange-traded fund models? 

Nothing in our Core Risk Based ETF models as of late. In January, we added the SPDR Portfolio Long Term Treasury ETF (SPTL) (long-dated U.S. Treasuries) to our ETF models in case the economy went into recession.

Earlier in January, we lowered our equity exposure, as we had become increasingly worried about the global economy; we also extended our fixed income bond duration (which historically has helped during recessions).

The ability to be dynamic and own multiple asset classes is helpful for us. We perpetually own alternatives for rainy days like we are currently experiencing. Tax loss harvesting is an area of focus for us during market meltdowns.

Do you anticipate making changes to your models?  

We are getting this question a lot. We prepared earlier this year for an economic slowdown, because we were worried about expensive valuations in U.S. tech/growth stocks.

The good news is that once you strip this segment out, the rest of the market doesn’t look bad (10-13X price-to-earnings ratios for international, U.S. value, U.S. dividends, cyclicals, emerging market equities, etc.).

The main issue right now is that the risk-free rate was high, creating a lot of competition between stocks and bonds. We made it abundantly clear that we preferred bonds over stocks in our year-ahead outlook. Our 10 ETFs for 2023 had more bonds than stocks for the first time in the decade we’ve been writing this report. 

Should you be worried about markets? If you are reacting to day-to-day moves, then your risk tolerance is off balance. If you have a multiyear time horizon, we would focus on the fact that valuations are generally attractive outside of the U.S. large cap index, and bonds are now finally attractive.

We’d argue that having a long-term time horizon is important and advise trying to avoid the day-to-day noise.

Astoria Portfolio Advisors Disclosure: This article was written by John Davi, founder, CEO and CIO of Astoria Portfolio Advisors. There is no affiliation between etf.com and Astoria Portfolio Advisors.  

Past performance is not indicative of future performance.   

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