ARK Wealth Insights

ARK Wealth 1st Quarter Portfolio Updates

Posted by Matthew_Hanshaw-CFP on Mar 22, 2019 1:25:54 PM


With the announcement from Jerome Powell, Federal Reserve Chair, that the Fed has changed to a “wait and see” stance on the Fed Rate for the remainder of 2019, we have made some investment model changes that you will notice on your next statement.  Citing the lowest job growth since 2017 and a respite from the inflation concerns, Chairman Powell has announced a unanimous vote from the Federal Open Market Committee (FOMC) to maintain rates for the rest of the year – currently 2.25% to 2.5%.

The most significant change in the WMP models is the release of LQDH for our replacement LQD.  This removes the rising interest rate hedge from our domestic fixed income which is achieved through buying interest rate swaps against the iBoxx (an investment grade bond index).  The same move was made in our domestic high yield bond portion of the portfolio.  This change involved removing HYGH for HYG. 


The FOMC will be meeting:


April/May 30th-1st

June 18th-19th**

July 30th-31st

September 17th-18th**

October 29th-30th

December 10th-11th**


** Meeting associated with a Summary of Economic Projections.


As these meeting minutes are released, we will be reviewing the implications that any Federal Reserve action may have on our strategic asset allocation decisions.  Chairman Powell’s comments are notable.  He feels the US economy is “Strong” and states that inflation is at or below the Fed Reserve target of 2%.  All the while, the European Central Bank has cut its growth forecast from 1.7% to 1.1%.  Relatively speaking, the strong U.S. dollar coupled with uncertain international growth has us maintaining our Hedge against the Euro in our Europe, Australia and Far East (EAFE) portfolio, and adding a currency hedge to our Emerging Markets portfolio through the removal of ETF FM and the addition of ETF HEEM.  FM provided access to an unhedged MSCI Frontier Market 100 index and the HEEM product is a broader based index with foreign currency hedge built in.  Its sister ETF EEM is the un-hedged version of the ETF but is not in our portfolio at this time.

Separate from our FOMC driven decisions, the Real Estate position has been changed for non-IRA portfolios.  Our holdings had been with an ETF SRET.  In an effort to reduce the taxable implications of these accounts, the holding was replaced by a traded Real Estate Investment Trust (REIT) HASI.  HASI is not focused as strongly on income, but rather capital appreciation.  We feel that SRET is appropriate for our IRA portfolio’s moving forward; however, the tax consideration for Non-IRA’s and the international nature of many of SRET’s holdings which delays their 1099 reporting because of various international tax treaties has motivated this change.

In a proactive move, we have added a domestic large company “Factor Weighted” manager.  The ETF is OMFL run by OppenheimerFunds.  From the website

“OMFL scores the component securities of the Russell 1000 Index by value, size, momentum, quality, and low volatility. To combine these factors, Oppenheimer uses a rules-based methodology that relies on leading economic indicators and global risk appetite to determine the state of the current market cycle: expansion, slowdown, contraction, or recovery. The fund shifts exposure to favor the factors that tend to fare better in the given market environment. Holdings are weighted by the combined factor score, scaled by market cap. OMFL capitalizes on the cyclicality of factor performance through its use of this dynamic overlay. The fund is reasonably priced for this added feature.” 

The changes that have been described today were not all rolled out at once, the communication serves as an overview of all the activity that has taken place this quarter.  I do not believe it will be necessary to announce every trade, or change to our portfolios moving forward; but, the announcement by the Fed signifies a significant policy shift for them.  So, communication of our reaction to that shift seemed appropriate.  I apologize for going fairly deep into the weeds; however, some of these issues can’t be boiled down much less than I have.  If you have questions feel free to call.

Topics: Retirement, Economy & Investing

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