Summary

• The Gardner Group is eliminating the tactical overweight to emerging-market stocks (BEXIX, EEM)
• The proceeds from the overweight allocation to emerging-market stocks will flow back to their funding source (80% US stocks/20% Developed International). The amount going back to US stocks will be reallocated to a mix of value and blend managers.
• As a result of these changes our global equity allocation will be closer to neutral overall, and our US equity allocation will be better balanced from a growth/blend/value perspective.

Trade Details

Note: More details on these trades and our updated positioning will be available in the first-quarter investment commentary. This should arrive in your inbox in mid-April.

After a broad review of portfolio positioning in recent quarters, The Gardner Group is eliminating the overweight allocation to emerging market stocks and returning portfolios closer to their neutral strategic allocations across US, developed international, and emerging-market stocks. Our decision to unwind the overweight to emerging market stocks can be summarized by the following factors:

• China’s economy faces cyclical and structural headwinds we don’t believe will allow for a sustainable rally in Chinese stocks (which account for roughly 25% of the MSCI EM Index).
• Uncertainty around Chinese economic policy has increased significantly over the past several years depressing sentiment and foreign investment.
• Outside of China, the broader EM index has performed well (India, Taiwan, Brazil, etc.). At just shy of 16x trailing earnings, absolute valuations for emerging-market stocks are fairly valued, in-line with their 30-year average, no longer supporting an overweight allocation (though EM stocks remain cheap relative to US stocks).

The proceeds from the overweight allocation to emerging-market stocks will flow back to their funding source (80% US stocks / 20% Developed International stocks). The amount going back into US stocks will be reallocated to a mix of value and blend managers.

As a result of these changes our global equity allocation will be closer to neutral overall, and our US equity allocation will be better balanced from a growth/blend/value perspective.

If you have any questions, please feel free to give us a call or schedule an appointment. Thank you, as always, for the trust you share with The Gardner Group.