Hi there—here's your investment update!
Introducing – TL;DR (Too Long; Didn’t Read)
-Industry figureheads are saying that stock market valuations are too high.
-Cash was deployed this week into short-duration fixed-income funds, or 'enhanced cash' funds. This is temporary until the markets decline. When the markets decline further, we will deploy into more aggressive strategies.
-If you have cash sitting in your bank account and want a separate ‘enhanced cash’ Round account, please reach out to our team.
We’ve spoken lately about stock market valuations being too high in the face of deteriorating economic readings.
There was a webcast this week with some of the top equity fund managers, and they all gave similar takeaways: stock market valuations are too high.
Moreover, other big-name investors have been in the news this week with the following quotes:
“[This is] maybe the second-most overvalued stock market I’ve ever seen.”
– David Tepper
“The risk-reward for equity is maybe as bad as I’ve seen in my career.”
– Stanley Druckenmiller
“Stocks have clearly topped the recent uptrend. Now we find out if this is 1930 all over again.”
– Scott Minerd
When you look at the numbers, the valuation of the S&P 500 is 30% more expensive than the dot com bubble of 2000 (PEG ratio), while corporate default risk hasn’t been this high since 2008.
These red flags are why we have defensive positioning within Round portfolios. A part of this defensive positioning has been in cash – which has prompted many questions lately from Round clients, which we dive into below.
The stock market and other risky assets, such as real estate and high yield bonds, have significant room to fall from here. As these assets begin to fall in value, there will be great buying opportunities for the long-term.
In the meantime, instead of sitting entirely in cash, generating little to no yield, the majority of cash is now being invested in short-duration fixed-income funds. These funds are also known as “enhanced cash.”
The aim is to provide the capital preservation characteristics of traditional cash investments while earning a higher yield with minimal interest rate risk. From a top-level, these funds act as a safe haven that simultaneously provides an attractive yield compared to the interest earned in a money market account, CD, or high-yield savings account.
If you have cash sitting uninvested in your bank account, we are now offering an enhanced cash portfolio option comprised of these enhanced cash funds. If you’d like to learn more about this highly specialized portfolio option, please don’t hesitate to reach out!
Saul & The Round Team
Have $100,000 or more to invest? You may qualify for Round Private Client. Click here to contact our team.