🔒Here’s how high-net-worth investors should manage the turbulent market, economy

So far this year, investors have experienced a wild ride, with Russia’s invasion of Ukraine, the ongoing pandemic, supply chain shortages, rising inflation and interest rates roiling markets.

The Dow and S&P 500 index — key market benchmarks — continue to slip from their start-of-the-year highs, dipping into bear market territory as recession fears mount.

Wealthy individuals, by logic, should have more resources than the less affluent to weather this kind of economic uncertainly and market volatility.

But those categorized as high net worth, with at least $1 million in liquid assets, are often dealing with a more complex balance sheet compared to smaller investors who are limited to only a few asset classes.

Hartford Business Journal recently talked with four seasoned local wealth management experts about strategies their firms are adopting for high net worth clients to keep their portfolios resilient in turbulent times.

Here’s what they had to say:

S. Tucker Childs

Director of Wealth Planning

Bradley, Foster & Sargent, Hartford

Current market view: “The war in Ukraine and the pandemic, which is ongoing, are important pieces, but our big question is what the Federal Reserve is doing to battle inflation.”

High net worth concerns: “The questions we’re getting is if we’re at a bottom and if there’s a need to change their investment strategy.”

Investment strategy: Core strategy is individual stocks, high-quality, blue chip names. “We don’t use a lot of mutual funds or exchange-traded funds for clients because we like having the ability to build customized portfolios.” At the end of 2021, rebalancing included paring back equities to meet neutral long-term objectives.

Stocks to grab: “High-quality growth companies like Adobe and Amazon, with great business models, which historically have been trading at high valuation multiples, are getting back to reasonable levels.”

Stocks in consumer staples and defense sectors are also strong performers year to date, he said, though that raises a red flag. “Now is almost too late to get into these sectors since the market has appreciated their safety and security.”

Stocks to avoid: “Names like Netflix and Disney that benefited from people staying at home but no longer as things have reopened.”

Fixed-income considerations: The firm views bonds as the “safety piece” of the portfolio. Short duration U.S. Treasury notes, two to three years, are a preference, though he notes “bonds yielding 2.5%, with inflation at 7% in real terms, are still a losing proposition.”

Crypto stance: The firm doesn’t trade crypto for its clients. “The price action and volatility in crypto has been mind-boggling, which makes it tough to get a valuation, and that and other factors, make it uninvestable in my view.”

Megan Trask

Partner

Connecticut Wealth Management LLC, Farmington

High net worth concerns: “It’s human nature for clients to want to take some action when the market drops. We almost always recommend riding it out, that taking action on the investment side is usually the worst move in a market like this.”

Investment strategy: The firm takes a long-term investment approach through exposures to broad asset classes that provide growth to investors, and moved to trim back equity allocations late last year.

“Since January we haven’t made any tactical moves in the investment portfolios. Our clients tend to be more conservative and don’t need to take on a ton of risk.”

Stocks to grab: The firm only invests in mutual funds and exchange-traded funds, not individual stocks, to gain broad exposure to asset classes for the lowest costs possible, she said. But sector wise, “large growth stocks are on sale right now.”

Investments to avoid: “We don’t have a dedicated commodity position. When you look at the data, commodities do well in inflationary environments, but it doesn’t last.”

Inflation hedges: “We typically don’t get too fancy and insulate portfolios against inflation. In general, we think stocks make the best inflation hedge.”

Alternative asset strategies: For qualified purchasers, clients with more than $5 million in investable assets, a venture capital allocation is recommended.

Crypto stance: “Crypto doesn’t fit in with our core long-term strategies because of how speculative it is. As products develop, we may be open to actually recommending. We have clients who speculate in crypto on their own and we have some in-house experts who can advise them.”

Tony Roth

Chief Investment Officer

Wilmington Trust Investment Advisors, the wealth management division of M&T Bank, with offices in Guilford and Norwalk

Current market view: “The major issue the economy is confronting is inflation, the growth problem is a byproduct of inflation and our view is that demand will self-correct.

“Our expectation is this will be the trend over the next two calendar quarters, inflation should come down and with that outcome, we should still have enough growth in the economy to be able to avoid a recession. But we expect the market to come down further.”

High net worth concerns: “They’re asking if we’re going into a recession and whether they should be taking money out of the market and putting it in cash.”

Investment strategy: Client portfolios are customized across asset classes. “We were overweight in stocks until March of this year. We think equities are getting to the point where they are fairly priced given the economic outlook, but they’re not cheap. We’re neutral on equities, underweight in bonds and overweight in cash.”

Stocks to grab: “We continue to look at energy and health care, which are areas still not trading at crazy levels. And we believe some of the key tech companies like Microsoft are really critical to the foundation across all segments of the economy, and other companies that are big in software, whether cloud or security, are really going to do well over the long term.”

Stocks to avoid: “We’re trimming consumer stocks, both staples and discretionary, stocks like Apple, Best Buy, other high-end retail brands, including clothing companies. Netflix, Meta Platforms, and other social media companies I would stay away from.”

Fixed-income considerations: “We think there’s a good argument for putting money back to work in bonds, but we’re being patient because the better argument may be to put money back to work in equities. We are moving some clients into more short-term bonds right now.”

Crypto stance: “We think crypto is here to stay and we’ve been exploring, but it’s very hard to structure exposure to cryptocurrencies in a cost-effective way. We’re working on some different approaches to start to include that in our portfolios.”

Ken Russell

President

Grey Ledge Advisors, part of GSB Wealth Management, Guilford

Current market view: “Our view is the equities market is overpriced. Anything short of fabulous news from a company trading at 50 to 60 times earnings, as many big names are, is going to bring that stock down.”

High net worth concerns: “One in three of our clients is over 70 years old and taking distributions, so volatility is a sensitive issue for them. Our clients are about wealth preservation, not wealth creation.

“Their questions are ‘do I have enough, am I still on track, do I need to make changes?’ For the last question, for the most part, the answer is no.

“Our diversified portfolios aren’t down that much compared to the equity market and certainly not earning returns in panic territory. We’re making little changes, but nothing drastic. A lot of those clients are actually I think carrying bigger cash allocations than they should.”

Investment strategy: “We’ve always been a traditional large cap U.S. value shop with a focus on individual equity selection for high net worth clients. In our clients’ portfolios, we‘re not trying to chase total returns or yields.

“Our core strategy has always been long-term investments in big companies, with good balance sheets, good earning potential that earn money and raise dividends. For the last nine months or so, we’ve been slowly parring back from well-known names.”

Stocks to grab: Energy, consumer staples and defense sectors.

Stocks to avoid: Technology, “really over priced.”