March 2020 Capital Markets Update

Dear Clients, Friends and Associates,

Over the last several months, society has been confronted with a global health crisis seemingly pulled from a science fiction novel. Despite this, we are confident that our combined strength and resilience will meet and overcome the immediate challenge and better prepare us for future crises.

Our investment and planning approaches seek to blunt the effects of severe dislocation regardless of the catalyst and take advantage of oversold markets that often accompany a crisis. We share your emotional tumult but employ investment risk/reward guidelines, which we believe will limit overreacting as the equity markets tests statistical limits.

We believe that now is not the time to sit idly, but to take calculated action and add value. We are continually updating our analytics regarding asset allocation and risk assessment. Rebalancing, opportunistic tax-loss swaps, and other forms of ongoing portfolio management are essential.

Recently, it appears that capital markets have begun a stabilization process characterized by more orderly price discovery. Several indicators and actions are supporting the capital markets:

• Historical extremes in the fear gauge as measured by the VIX (volatility measure) which has led to panic selling;
• The panic selling caused a near-term liquidity crunch resulting in oversold safer havens such as municipal bonds and high-quality corporates – repriced high-quality municipals are providing gross returns in excess of Treasuries;
• Swift and bold action on the part of the Federal Reserve and the Treasury to restore liquidity and ensure orderly functioning of markets;
• By weeks end we anticipate the enactment of legislation providing broad fiscal stimulus that should greatly aid individuals and corporations to bridge the economic stress affecting virtually everyone;
• To the extent possible, emergency response systems are ramping up additional capacity to hopefully meet demand for treatment;
• Certain Asian economies are returning to work, providing useful data relating to the time required to control and recover from widespread exposure. We are not dismissing the chance of a global relapse, but are hopeful that countries initially affected will act strongly to stave off a second wave of infection;
• During this week, long-term investors are finding significant pricing value from the end of February;
• Liquidity levels in fixed income markets have stabilized and as noted before provide strong relative value in certain sectors.

We seek to rebalance portfolios back to target equity weights, with emphasis on sectors such as Technology, Healthcare, and Communications, which we believe will provide resiliency through the crisis and also offer long-term value. This secular thematic approach will drive growth as the economy recovers.