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RIAs turn to hedging strategies amid ‘faceplant’-inducing markets

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The stock market of the last 40 years is dead and gone.

So says Integrated Partners chief investment officer Rob Brown, who believes the global investment industry today faces truly ‘directional change’ for the first time since World War II, citing ‘a confluence of seismic issues,’ including war in Ukraine, the shift from fossil fuels to renewable energy and the growing wealth and income gap.

Brown says that a new reality demands new solutions.

‘If you think modern portfolio theory and mean-variance optimization is going to work when you’re facing directional changes, no, you’re just guaranteed to faceplant,’ he said.

Whether or not they, like Brown, believe that 2022 will represent the start of a paradigm shift in global economics and market behavior, many RIA CIOs are adjusting their portfolios for a market in flux.

MAI Capital Management chief executive Rick Buoncore told Citywire that with ‘so many moving parts in the world right now,’ he has directed his investment team to seek out ‘unique, uncorrelated opportunities.’

Sanctuary chief investment officer Jeff Kilburg said he and his team were reviewing the firm’s exposure to alternative asset classes ‘due to the fact that we were just kind of late in the bull cycle.’

But now with inflation surging, ‘we are increasing our private equity exposure across our book,’ Kilburg said.

Growing hedges

Buoncore is also seeking to protect portfolios against inflation. He said his $13bn RIA is taken refuge in a farmland infrastructure and timber ETF.

‘They’ve been getting a yield of 3% or 3.5%. That’s not normally that exciting, but right now it’s okay,’ he said.

In Waltham, Mass., $12bn RIA Integrated Partners maintains a series of quant-driven ‘Opportunistic Funds’ that aim to help investors capture returns amid uncertain investment environments. Brown (pictured) said it’s been interesting to watch those funds readjust in recent months.

‘They moved away from international stocks – too risky and poorly performing – and stuck with US industry sectors of various types,’ Brown said. ‘Starting around the first of the year, they began loading up on ETFs that are investing directly in commodities, whether it’s oil or base metals or agriculture or industrial commodities. They also began to swing towards countries where their equity markets are more commodity-oriented, like Canada and Brazil.’

Kilburg told Citywire that Sanctuary’s public equity exposure is getting ‘more defensive’ by retreating toward blue chip stocks, particularly in the industrial sector. The firm’s ‘essential 40’ portfolio is loading up on shares of companies like Johnson & Johnson, Lockheed Martin, Visa, Duke Energy and Berkshire Hathaway. These holdings are equal-weighted rather than market-weighted, which Kilburg said ‘helps protect on the downside and allows us to capture [gains] when we do see snapback rallies like we did at the end of March.’

In a stock market like this one, he said, ‘boring is sexy.’

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Rob Brown is solely an investment advisor representative of Integrated Financial Partners, and not affiliated with LPL Financial.
LPL Financial is not affiliated with any of the named entities.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.