EWA Stock Market and Portfolio Review Q2 2024

April 23, 2024

1. Introduction (0:09)

2. Market Summary and Update (0:54)

3. EWA Portfolio Model and Philosophy (16:26)

4. EWA Live Look at Portfolio (22:47)

Episode Transcript

In today’s video, I’m going to be walking you through our quarterly investment updates. And first, we’re going to be looking at a state of the union of the market, really a summary of what’s happened in the last three to twelve months, and then looking forward what themes are at play and how we’re navigating that. Then we’re going to be looking at EWA specific investment portfolio and really the philosophy and how decisions are being made and what expectations moving forward. As we help you navigate a life by design, make sure that portfolio is always supporting a stress free life now, while growing for the future to reach all of your goals. Then last but not least, we are going to go line by line item on the EWA portfolio.


We really welcome any questions you have and look forward to serving you for years to come. Let’s look at some of themes for quarter two of 2024. Moving on, there’s been blowout earnings, which is really strengthening the bullish thesis we have. So one of the moves is we’re moving overweight to stocks and tactically dialing up active risk. You’re going to notice two funds in the large cap section of the portfolio. Now we’re delineating s and p growth and s and p value, so that way we can favor one or the other based upon, again, what economic cycle we’re in. Growth right now is the one that will be favored.


And then we’re also adding some actively managed exposures, especially in the international and fixed income space, to navigate, you know, changes interest rates and also the fact that we have a lot of political turmoil. And also, again, as I said, 49% of the population in the world is out to vote. So that’s going to be incredibly important. Next up, the elephant in the room is, you know, the magnificent seven. Specifically, Nvidia has done extremely well. There is very high expectations for these tech companies and Nvidia has actually done the impossible. They’ve trounced the already sky high earnings expectations. Fourth quarter earnings blew past the expectations. And year over year revenue more than tripled. Net income and earnings per share each increased by nearly nine x nine times over. Then Nvidia stock has more than tripled over the past year.


So 1 trillion in market value cap just in the last few months. What’s absolutely outstanding is that these huge price moves are being outpaced by even larger upward earning revisions. Companies management’s projecting continued revenue growth and margin expansion moving forward. So green line on this chart shows the rate of change over the last twelve months and then forward looking earning per share estimates. So this begs the question, how can this trend possibly continue? Our view it’s very well may continue because the AI hype is real and we are in the very early stage of this revolution. Companies are generating earnings that validate their price increases in valuation differentials over the past year. All the adoption results in real time, and this expands well beyond just Nvidia. Look at Microsoft, for example.


In recent earnings, AI contributed double the amount of growth to its cloud business in the previous quarter. Microsoft, Meta, Google and Amazon are all expected to funnel massive amounts of money into data centers, which should turn into bring more newer sources of income, more diversified sources of income. And there’s a structural shift happening at just the research and development spending with the demand that AI has brought. Next up, let’s look at the earning per share results. If we look at the mega cap, tech plus, mag seven, whatever you want to call it, these large, technology focused earning machines, undisputed heavyweights in s and P 500. As of today, they objectively earn the belt. Anytime we’ve added to an exposure, continuously notching new all time highs, it would really behoove us to be on a bubble watch.


And naturally, comparisons to the late nineties of the tech bust. Given the tech concentration, excitement around innovation are being drawn. We see important differences today, namely that today’s leaders are high quality companies, low debt, strong track records, robust revenue, earnings and cash flows. These companies are continuously growing, with nearly 60% of cash flows reinvested into growth, research and development. They trade at one third of the.com bubble multiple, so not to worry. From a bubble perspective, however, looking at Q four earnings of 2023 in the chart on the left, we see tech blew out the rest of the S and P 500 in all major categories. Revenue is two and a half times the S and P 500 average, and margins are six times average s and P 500 earnings 4.5, and earnings per share are four times the average.


So S and P 500, you take out the mag seven, actually delivered slightly negative earning growth and sales growth of just 2.4% last quarter. If you strip out tech, sales growth was slightly negative on the quarterly tech sector delivered 23.5% earnings growth and 7% sales growth. Well, the Mag seven alone finished with 56% earnings growth and 15% sales growth. So in summary, what’s incredible is that when we look at forward looking analyst expectations, we see the dispersion continuing. The chart on the right shows consensus Wall street analyst revisions for quarter four of 2023 and the full year of 2024, if we look at the 6th largest tech companies, earnings continue to be revised. Revised higher. Or the opposite is true for the S and P 500.


If you take the tech out of the picture, so far, the fundamentals of the mag seven have satisfied even the loftiest of investor expectations. Until that changes, we think this can continue. That said, if those earnings and growth rates collapsed or sky high profit margins declined, we could clearly well see a bubble like response in stock prices. And that’s why you’re going to see in your portfolio we have a specific tech exposure ticker, IYW iShares, us technology ETF. That’s a small allocation, just so we can have direct exposure. And then also we have the Soxx, which is the ishare semiconductor ETF, which again, AI doesn’t exist without semiconductors. That’s literally what’s powering it. So if you could invest in the Internet when it was invented, you couldn’t, you had to pick which company.


Here, AI is a little bit different because you can invest in what actually powers it. And we see that’s the safest bet. And if you look inside of that fund, obviously, Nvidia is the top holding of that fund. All right? And if we look at the valuations really across the board, we’re really a reasonable level. So these charts here tell a pretty incredible story as further sports reviews we stressed in the last slide. So what we’re showing here are the twelve month forward price to earning ratios for Nvidia mag seven. And then last but not least, the S and P 500 over the last three years. In addition to delivering more earnings power, these stocks are actually getting cheaper when looking at price to earning ratios. So again, this is because despite incredibly priced returns, we’ve even seen even more impressive earnings.


Strictly looking at performance, over the last three years, the tech sector has outperformed the S and P 500 by around 30%. Compare that to the peak of 250% we saw back in March of 2000, before the bubble hit. So it’s really hard to argue this looks like a bubble ignoring the rate of change. It is true these stocks trade at higher multiple or premium. The rest of the S and P 500 roughly 28 earnings versus 21. However, in comparing the aggregate forward price to earning ratio to history, tech is roughly in line with the ten year trailing average.


So furthermore, if were to compare this to end of 99, at the time we saw the S and P 500 tech set are trading at 80 times price to earnings multiples, all these factors really support the decisions to go into high quality growth companies and also some smaller concentration in tech directly. With that higher concentration, if we see this flip, we can easily take it out and this will give us more of a dynamic flexibility to do so again. Always staying in the market, but paying attention to what type of economy we are in and what underlying investments that were in the market at all point is going to be very important moving forward.


All right, so the next theme we’re going to look at is, as you can see in this overview, one of the biggest sources of uncertainty we’ve observed in January to the Fed policy. So going into the year, the market was pricing up to seven interest rate cuts throughout 2024. Despite the Fed’s summary of economic projections now signaling just three cuts published in December, our belief was the market would have to adjust expectations downward, which likely cost volatility and equity prices medium longer term view is quite positive. We anticipate some market indigestion in the short term. What we have observed over the last few months, what you can see here on the chart, is that market pricing has finally moved in line with the Fed’s own projections.


The market is now pricing in two to three fewer cuts starting two meetings later than they were at the start of this year. June is now seen as the most likely start for cuts, but even that is an assured thing. With only 60% likelihood being priced, the narrative is starting to shift quite a lot. Some economists are even calling for no cuts in 2024. Our view remains that the Fed will cut in the second half of this year, and we see three cuts as both sensible and potentially in a floor. The Fed is looking for a sustainable downward trend inflation. And while we have seen a series of sticky points recently, we think by summer the displationary story we’ve been telling will be widely accepted.


Remember, the Fed is not signaling rate cuts due to economic weakness, but rather wants to react to lower inflation. Cutting rates prior to inflation hitting 2% is prudent. Monetary policy works with the lag, and as inflation comes down, that also means real rates are going up, resulting in tighter policy. Fed needs to stay ahead of this in order to bring policy back to more neutral stance, which is their intention, and the Fed moving away from tightening along with the markets. Now price in line with our expectations and the Fed’s projections give us confidence to lean more into this risk. All right, one of the next slides is going to be very important moving forward. So when COVID happened, there was a lot of stimulus that individuals received and actually not a recession but it was called the great resignation.


So a lot of people exited the workforce not because they got fired, not because family emergencies, but studies have shown that a lot of people just voluntarily exited the workforce. And these were even some younger people and some early retirees. Typically with all this, the money inflows and the power really shifting to the labor force, the employees of companies, that means that companies would have to attract talent, which was really hard to do a couple of years ago, and offer ridiculous wages well above normal. So if you look at the nurse shortage around the country, in hospitals, nurses are now getting paid a lot more than they were pre COVID. And they work hard. They deserve to get paid. But just an example.


If you put that into a publicly traded company, the more wages that a company has to pay means, you know, the less profits. There are just very common sense here. So in the economy, what we see happening right now is quit rates are going down. Now, when quit rates go down, that means that employees generally don’t feel like they could go find a job that pays better or even pays as well. So they’re losing confidence. And what that does is that gives the companies more power and more certainty as far as wages moving forward, so they can make company decisions to grow the company, etcetera. So, not saying this is a good or bad thing philosophically, just commenting on what we’re seeing and how it will affect the stock market.


So now, if we get into some of the nerdy data based upon this chart. So really just looking at the job market overall in January is a healthy slowdown in labor, which would help support the economy settle in a soft landing. We’re giving fed confidence move forward with the normalization of their policy. So, looking at February job numbers, us economy added 275,000 jobs that was well above expectations. That was offset by a downward revision. The huge numbers we saw in January, though. So the pace of job creation is slowing, and this can help settle inflation down. So in February, we saw average hourly earnings cool coming in at 0.14% month over month, down from January, which was 0.5%. If we look at the last six months, there’s a clear downward trend that has been taking place in wages.


You know, part of the story, again, as I said, it has to do with the quit rates falling in the end of the great resignation, which tends to be a leading indicator for wages. So in this chart, we plotted the quit rates in the red dotted line against the wage growth so lagged. If we look at the last twelve months, you can see the correlation the leading signal and looking just at quits, that red line. This has been a downward trajectory for really some time now. So the punchline, very simple, equip rates falling, indicates that workers are less confident in their ability to find a new job or find better pay. When people are unwilling to resign, they lose bargaining power and ask for higher wages.


And companies are less pressured to offer higher pay to either attract or keep workers, all limiting how fast wages grow. A not so great thing for workers is actually a good thing for normalizing inflation. Less money people have, you know, less crazy prices they’ll buy in houses. We saw the house economy score, just a very simple example. And so job gains are slowing. We do believe job growth continued to be strong following the trends of 2023 with an influx of immigration, improved work from home policies. Our view is that a healthy labor market of continued growth and payroll gains, but one where demand and supply is more balanced. It’s not a power dynamic.


This can support inflationary trends towards the 2% target that allows the economy to settle into a soft landing, which again is very important for market volatility, once again enables the Fed to move from their restrictive policies to a more neutral one as inflation improves and stabilizes. If you look at any kind of financial news outlets, you’re going to see a lot of clickbait around inflation. So next slide we’re going to talk really deep into inflation and expectations moving forward and how it’s going to affect the stock market. If we look at there’s been some surprisingly high what we refer to as CPI consumer price index prints in January and February. Reading of the data leads us to think inflation will still surprise to have a downside and lead policy rates lower after we may potentially get another month or two of sticky headline scares.


So the services sector gets a lot of heat for contributing to elevated price pressures, and rightfully so. Services prices jumped 0.6% in January after only climbing 0.3% in December of 2023. However, shelter costs are still the biggest contributor, while medical care, auto insurance and recreational service prices also increased. Nevertheless, when you drill further into consumer price index, you can see that over 50% of the 144 CPI components are actually below the Fed’s 2% inflationary target. So again, over half of the components are below where the Fed wants to see inflation, that target of 2%. So returning to is much more similar mix we saw in the CPI pre COVID pre pandemic.


We think this cohort of CPI sectors will decrease in price tends will only continue to grow, which will ultimately help us get closer to what seemingly elusive 2% CPI target with the market not pricing rate cuts in March, we’re left with six meetings, three of which will feature dot plot updates. And really to do three cuts. In our view, continued disinflation will be a key prerequisite to see any cuts at all. And really not surprising. But this inflationary, you know, we look at the portfolio, there’s diversified, you know, all over the world. Obviously there’s a heaviest concentration by far in the US in our investment philosophy, but this inflation thesis is really similar around the whole world. So next slide is going to show just that. So globally, the trend inflation is similar to what we’re seeing in the US.


We look at average core inflation measures from the US, the EU, UK, Japan, weighted equally. We see that since peaking over at 6% in May of 2023, the global core inflation level is not too far off from the 2% level as of January 2024. So when we look at under the hood a bit, we see us led the way with peaking CPI much earlier in June of 2022 and then the eurozone and UK following in September 2022. In turn, all three central banks embarked on an aggressive rate hiking over really 18 month period following. So the biggest challenge faced by central banks is trying to balance their dual mandate of stable prices, maximum employment, while also recognizing their policy tools take twelve to eight months to really produce the ultimate effect that they’re going for in the first place.


So despite core services remaining stubbornly sticky and labor markets remain tight, we also see evidence of global disinflationary trend that is really supportive of the soft landing narrative that market participants are waiting for, not just in the domestic region, but also overseas. All right, that wraps up some of our views moving forward. And next up, I’ll go into a little bit more detail on specific EWA portfolio changes that you’ll see in qualified accounts moving forward. Also the same concepts. We’re doing an overhaul of the direct indexing. Again, focus on some of the quality factors that we’ve already addressed in past videos. Next up, we’re going to talk about the EWA portfolio.


So some of the shifts you’re going to see have already been addressed in the last couple minutes of speaking, but also moving forward, we’ve talked very significantly about our quarterly process, but wanted to go furthermore into some of the guardrails we’re setting just to set expectations moving forward. So as you can see in the slide we built here, number one, 5% is going to be the max deviation we ever go from an equity to bond allocation. So right now we’re 3% heavier to equities based upon all the factors that we just talked about. Secondly, just broadly speaking, we have a two thirds US, one third international preference in just the equity portfolio alone. So about 67% of the portfolio will be us based and 33% will be international based. So then more specifically in the US, and this is really important to.


I’m going to talk about a couple more slides of why. But as we go through early, mid, late and then recession type economies, not just in the US but overall internationally, we want to be specific about how we’re investing the money. So just a couple of things we do here on the screen, and then a couple of things we don’t do, is we’re never going to time the market, we’re never going to say, hey, we’re moving to cash, we’re always going to be in the market, we’re always going to be asset allocated, and we’re always going to be diversified, and we always are only going to be in the market if it’s a long term investment horizon that is designed to support your financial plan for the rest of your life.


We believe, you know, living stress free now and also living life by design, not having regret in the future. And to do this, we need to match getting the highest rate of returns, but also managing risk on the downside. That’s done through asset allocation and underlying diversification. We also need to have a philosophy in place to stay disciplined where we’re not mixing goals or going for big returns unnecessarily. We want to have every part of your balance sheet really in support of that lifebuy design and support of each one of the goals that we’ve talked about. And we’ll continue to talk about moving forward as life does change and evolve. So that’s it.


And then obviously on the fixed income side, very important right now that we’re managing duration because interest rate fluctuations, if you actually look at 30 year rolling periods of the fixed income market, fixed income investment bond investments, although they’re safe, they’re more risky than equities when you look at 30 years. That’s because interest rate fluctuations can have big results and price changes of bonds when investing in long term bonds. So right now we have really floating between a five to six year duration in the portfolio and that’s layered. So for clients that are retired, there will always be short term money that we can pull from and not have to ever pull from a loss from the equity side or the fixed income side, regardless of where interest rates have been currently are or where they’re going.


All right, well, next up, we want to talk about some of the specific funds in the portfolio. So, as mentioned before, you are going to see a delineation now in the s and P 500 between a growth fund and value fund. And the reason for that is obviously, right now we have tech companies really leading the charge, and we want to have direct ability to favor growth or value based upon what economics like you see. So next up in the portfolio, you’re going to see an equity factor. So next up on the screen, we have minimum volatility, which is a fund that’s going to focus on very stable companies that really have to exist, no matter what type of economy, when people have to eat, people are always in need healthcare, people always need their utilities to operate. Low size companies, more nimble.


Right now, we’re not favoring as much in the low size because these are much more impacted by higher interest rates. Then we have value. So stocks that look on sale versus their fundamentals, typically these are also more mature companies that also pay dividends. Quality stocks are really that top quartile of the lowest debt, having a corporation with the lowest amount of debt, and then also high cash flows, high cash in the balance sheet as well, then momentum are really trending stocks on the upswing. So, as you can see, recovery, expansion, slowdown, contraction, different stages of the economy. This fund invests in all five of these factors, and it’s going to allocate heavier to certain ones based upon what type of economy. And really historically, which factors have performed well when.


So just as an example, quality is a big theme right now in our portfolio. That’s a big underlying favor, simply because there’s a lot of uncertainty right now. With, again, half the world going to vote, a lot of countries are at odds right now, et cetera. So companies that have the most flexibility, so highest cash flows, low debt, have the flexibility to navigate these market conditions. And when you look at navigating on the next screen, this is a more nerdy screen. But if you look at the market in general, there in the dead center of the screen, these are returns from 2003 to 2023. Obviously, we’re talking about the US large cap here, the standard deviation of about 15% there, with returns just about 10.1%.


And if you look at these factors over those periods, the majority of them, except minimum volatility and value, have done similar. But the minimum volatility have much less risk. And then the momentum and quality, higher returns with the quality with lower risk and momentum with a little bit higher risk. But when you’re able to calibrate and navigate through these, all of them are going to get market returns. When you’re able to calibrate. As we go, what we see is obviously getting a higher return to lower risk ratio, which is what we’re shooting for inside of a financial plan. In the next screen, we’re looking at what sectors of the market on the left hand side and then on the right hand side, we’re looking at early, mid, late and recession. And again, what companies are anticipated to be favorable.


In the green with the plus sign see nothing white, that means neutral. And then the red obviously means not favorable if we’re in that type of economy. So this is something we monitor, what type of economy, and that’s how rebalancing will work on a quarterly basis. Moving forward is based upon what type of economy and how can we strategically asset allocate while again always staying in the market. All right, now we’re going to put on the screen the EWa live portfolio. And this is going to look at first we’re going to have a wide view, which is going to show, if you’re a conservative investor or the most aggressive investor, what percentage of each fund that you are going to be in. And then also we’ll zoom in on just the funds so I can walk you through rationale between each one.


So before we get started, first one, just want to reiterate, you know, some of themes we’re looking at. This is like 100 years ago, there were five times the amount of 15 year olds in America than there were people over 65. And now for the first time in 2024, there’s more people over 65 than those under 15. Immigration becoming, you know, more and more tough for the US. There’s a lot of factors at play here, and that’s one of the reasons as economic cycles change. But also there’s different themes that are out there and important of how we navigate your low cost portfolio, but also make changes that are aligned with getting the best returns, but also with the least amount of risk as possible.


Okay, so first up we have the iShares S and P 500 value ETF and iShares SB 500 growth ETF. So the rationale between splitting these is based upon what economic cycle we’re in. We expect a large out performance of growth. If the regime changes, we’ll want to add value, take away growth so skewed to growth right now, but it’s not as balanced as it once was. The mag seven, which are in the growth category, have really led the market and the price to earning expectations, as discussed in the second section of this video, have really been tough to hit, but they’ve been blown out of the water. Then if we skip down, that’s also why we have a small percentage really lasered in on that technology ETF. As we’ve talked about, we don’t see anywhere near valuations that we saw in the.com bust.


And so we still see a lot of bullish outlook on technology stocks, especially powered by the AI, which we discussed also in the second part of the video. So if that changes, and price to earnings ratio changes and expectations are not expected to be hit from a price to earnings ratio, that’ll be easy to move on, and then the s and p value versus growth will be easy for us to dynamically shift as well. Next up, we have this equity factor. This equity factor, it holds minimum volatility, it holds momentum, it holds quality, it holds these different factors. And internally, even though this is a low cost ETF, based upon what economic cycle we’re in, it’s going to shift in favor of which factor. For example, right now quality is a big factor.


In fact, on top of holding this, we hold more percentage in quality. Specifically because as there’s political tension as half the world is out to date, as us and China are at odds, all of these different changes require corporations, companies that have the flexibility to weather storms and to navigate the uncertainty. And so to do so, you have to have a good balance sheet. And these quality stocks really look at the top 25% of companies that have the lowest amount of debt and obviously the highest profit margins as well. So that’s an important theme right now that could shift over time, but right now, that’s where we are. All right, next up, I want to talk about the semiconductor. So this is something that we addressed last quarter. And AI is here to stay its power most of the magnificent seven.


And AI doesn’t operate without these semiconductors. As we always use analogy, if you could invest directly in the Internet, which you couldn’t, this is how we can directly invest in AI. But without taking on any kind of speculation. Any company that Ops AI, they have to use one thing, that’s semiconductors. So this ETF holds multiple companies that produce these semiconductors. Some are producing the Mercedes of semiconductors. Some are producing the Honda semiconductors. But we see that’s a very important moving forward as companies use this to become more efficient and lower cost overall. Next up, we’re going to talk about the energy and the infrastructure ETF. So in election year, this diversification really plays in. The infrastructure bill was just a huge bill that was signed by the US.


And energy, some obvious stuff around this, not to get too political here, but with all the tensions we see in the Middle east, some of this could bring things back to higher energy bills that we’re going to see in the US, more energy that needs to be produced in the US. And so unfortunately, sometimes when you see these tensions, that means energy is much more needed in concentration. So that’s why we’re putting it in there as a small allocated percentage in the portfolio in the US. One other thing you’re going to notice is we have a lower percentage in mid cap and small cap. This is simply because moving forward, stocks move on price to earning ratios and more reliant on cash flows in the future. And these are very unknown.


Mid and small companies have a much harder time obtaining cash and getting cash. They’re typically in growth stage trying to get big, and that’s very hard to do when interest rates are high. So that’s something, again, we’re monitoring, it’s an asset class. We want to maintain the portfolio, but something that we’re definitely favoring large cap companies over mid and small currently, as a result, as far as the international exposure goes. So we have some ETF exposure here and we have some active managed exposure, obviously with the cheapest share class available. This is going to be very important. Purely from a risk management perspective, we’re still two thirds in favor with our equities of us over international. Two thirds us, one third international. However, how we invest international, again, we have the value ETF and also the International Growth Fund.


Both have those quality components we’ve discussed. And then from our emerging markets fund, you’re going to notice that’s still the same fund from the active play and then also from the passive play. We are going back to the ETF. That excludes China. And really the rationale behind this is China is the second biggest economy. But a couple things have happened. So there are an aging demographic in China due to the one child rule per family, the population is not backfilling, they are triple leveraged. So if you look at the US real estate bust of 2008, which led to the great financial crisis of 2008, if you look at how much were leveraged compared to China is three x that.


And so when you look at how much leverage they have, how much political attention they have, and then also the fact they’re not backfilling their population. So who’s going to buy this real estate market, et cetera, in the future? That’s where, for the emerging markets, we want to exclude China. And then this is naturally going to give us more exposure to companies like India and Japan. And also when there’s political tension, typically imports, exports, trades, go closer to the US. That’s where we see, for example, Mexico can produce at a very low cost. That’s where we see a lot of business being done from the US, from an import export perspective, moving forward, then onto the fixed income part of the portfolio. The fixed income part of the portfolio.


As you know, interest rates before the last couple of years have been at historical lows. And now with rate hikes, it’s been interesting. Obviously, if you have a long term duration bond and it’s paying 3% now, the same person that wants a bond can now go get it at five or 6%. In the meantime, no one’s going to pay you full price for the bond that you hold that has 3%. So that’s why, in general, we’ve stayed with low durations around five years. Now that interest rates have climbed up, we’re going to be trending towards that six year duration on average. Next, I’m just going to walk you through line by line on which bond funds we’re using and why. So, first up, the new one you’re going to see is called BIsX strategic income opportunities portfolio. And you’ll notice this is institutional shares.


So obviously, being a rea, partnered with Fidelity and Charles Schwab, we have access to institutional pricing versus retail pricing, which is huge. So along with all our funds, there’s never a fee to get in, never fee to get out. Brought you is in the lowest cost share prices available for the funds to keep the soft cost of the portfolio as low as possible. So the interesting thing about this fund is it is a one of the best bond funds historically, and moving forward, it has the Rick Reeder, who’s one of the best fixed income managers. So this is going to be a very flexible. So that as fixed income dynamics change out there, this fund has the flexibility to have a duration between negative three to a positive seven years. Historically, it’s been between that zero to three mark.


And how they get it negative is actually through derivatives. If they think interest rates are moving, they’ll write derivatives. And then also it can be a global fund. So this is not just fixed income in America, but it’s fixed income globally as well, which is super important. Then last but not least, this is essentially the manager of this fund is the CIO of fixed income at Blackrock. So this is going to be, you know, the fixed income, essentially the biggest fixed income manager in the world, which is very cool. So obviously lots of firepower, lots of insight, et cetera. Second up, a fund that you’re already used to seeing, the fidelity advisor total bond. Essentially, you know, this fund has beat the AG, the US index, and it has done so. It’s a very low expense ratio for an actively managed fixed income fund.


Next up, we have the ishares core total us bond. So this is basically the AG plus high yield. These two are core bread and butter, having the optionality, if you’re in distribution mode. Super important of making sure that we can get some of your safe money. Regardless of what interest rates have done, having these multiple layers allow us to get it out at gains, never losses. Next up, we have the ten to 20 year treasury bond. And this is simply because interest rates have gone up so high. It’s smart to have a portion of portfolio. How we’re getting from that five year duration up to essentially that six year duration is adding this fund in the portfolio. A lot of people have talked about the Fed’s going to cut rates.


If that happens, this fund is going to do very well because we’re essentially locking in a ten to 20 year treasury bonds paying between four and 4.5% at this time. This point, recording this video, look back a couple of years and it’s almost half those rates. So locking that in now is smart. Now, if interest rates go up, you’re going to see a little bit of short term volatility there. But if interest rates go down, then you’re going to stay with that 4.5% yield and also get some appreciation on the upside. If you decide to sell it before the ten to 20 years, then someone would pay a premium for that. If interest rates have gone down in the meantime. So this is just, again, a small portion of the overall bond.


But we do want some longer duration now that interest rates have gone up, then last but not least, we have a small percentage allocated to convertible bond ETF. So this is a quasi play where we’re giving up a little bit of less yield, where yields historically are still higher than they were a couple of years, but not as high they’ve historically been. But this also gives us the option to convert to equities in the future. So again, this can do well if equity markets, and obviously, we want to have a portfolio that has different correlations. So as you know, if you need money, as we’re managing low volatility, low risk, while also getting good growth, this is very important to have these different layers of the fixed income matched with the equities that we’ve talked about previously. Thanks so much for watching.


Look forward to catching you next quarter. And then, if you haven’t already subscribed to our weekly podcast, we’d welcome you to join that well, which can be found on YouTube, Apple, or Spotify. And if you have any questions or want to schedule a financial planning review, please reach out ASAP and we’ll get back to you to schedule as soon as possible.

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