Choppy Waters - Alaska Permanent Capital Management

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Choppy Waters

We all know that 2022 has been a year of increased volatility in financial markets. Fixed income securities are often looked to as a safe haven to protect a portfolio during such times. However, above trend inflation and contractionary monetary policy, among other factors, have led stocks and bonds to exhibit much higher than average levels of correlation this year, with rates often rising (pushing bond prices down) as equities fall.

Planning Ahead

APCM has prepared for market conditions such as these by developing well diversified strategic asset allocations based on the foundation of our capital market assumptions. Each year, APCM conducts extensive research to determine reasonable expectations for forward looking asset class returns, upon which our modeling is built. In recent years, this research has led us to adopt several new asset classes, including infrastructure and alternative beta, with the goal of reducing overall risk without derailing long term goals.  The increased diversification provided by these alternative asset classes, along with commodities, has allowed APCM’s models to outperform traditional stock and bond only portfolios with a similar risk level by over 3% this year.

Staying the Course

At APCM, we are strong believers that strategic asset allocation is the main driver of return. As a supplement to these strategic plans, APCM also tactically shifts portfolios to better address near term market conditions such as above trend inflation. This year, overweights to alternative beta and cash, as well as the addition of low volatility stocks, have greatly softened the negative impacts of market turmoil.

Among all of the details, it is critical to remember the most important aspect of any investment plan – achieving the goals and objectives of the portfolio. The investment team here at APCM continuously monitors both imminent and long-term financial market drivers and economic conditions to ensure that each client’s strategic plan is on track to do just that.

 

Joel Allen
Investment Analyst

 

9/12/22

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