Quarter 3 2025
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How would you describe the current state of the investment markets?
Finney-Cooke: Overall, I’d say there’s been a kind of resilience in the markets that many weren’t expecting. As it happened, global equity markets were very robust over the third quarter, with much of the gain due to demand for technology, artificial intelligence (AI) in particular. Gold, meanwhile, has gone up significantly while the U.S. dollar has weakened.
Concerns around trade negotiations and monetary policy will likely continue throughout the rest of the year, so we should be prepared for a bit of volatility. But as we’ve noted before, we can still have positive markets.
Speaking of fixed income, can you share your thoughts on the current interest rate environment?
Finney-Cooke: As you would expect, the Fed rate cut resulted in higher bond prices, especially at the longer end. At the same time, spreads narrowed in U.S. high yield, U.S. investment grade, and most mortgage-backed securities also produced higher bond prices. The investor demand for attractive yields and locking those yields in has been something that we’ve seen across the spectrum of the fixed-income market. I might add here that we expect further rate cuts from the Fed.
How does duration play into your fixed income decisions?
Digenan: Duration is an area where you can really be opportunistic, but when the opportunity is not there, you have to dial it down, which is what we’ve done. Without a reasonable expectation for compensation, we’re not willing to take a duration bet.
Finney-Cooke: We are being mindful of where we are from a monetary policy standpoint, and that we could be entering into increased inflation. Focusing on asset allocation in the credit markets and the credit sectors is where we think we’ll find the most benefit.
We’ve heard you say this is an exciting time to talk about equities.
Digenan: It is an exciting time. As Kristin mentioned, we’ve gone through this period of generally robust returns, yet we’re still seeing attractive valuations in various parts of the world. A lot of people may not be aware that European equities have come alive — they actually outperformed the U.S. by a wide margin this period. Equities to us look like a big diversification opportunity.
Do you believe there are still compelling growth opportunities to be found?
Digenan: The U.S. market has been strong for many years, but it’s currently trading at approximately 28 times earnings. That’s a very high multiple. Compare that to other parts of the world — Europe, Japan, emerging markets — now all of a sudden you’re looking at 16 to 17 times earnings. As the world transitions into AI 2.0 you’re going to see margin improvements across other industries in other countries, and that’s where lower multiples will be opportunistic.
The Frontier markets are also interesting. Stocks there are trading at 10 to 11 times earnings. These are high-risk/high-reward trades, but to get valuations roughly one-quarter to one-third of the U.S. is exciting.
Any final thoughts?
Finney-Cooke: Maybe now more than ever, it’s important to maintain a dialogue. We encourage you to connect with your investment representatives to make the most of your partnership. Talk to them about the issues that you’re facing and match them up with the opportunities we see in the market.
Important Information
All material of opinion reflects the judgement of the Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.
Quarter 2 2025
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A Conversation with Chief Investment Officer Tom Digenan, CFA, and Portfolio Manager Kristin R. Finney-Cooke, CAIA
Markets have often been operating against uncertain backdrops so far this year. What’s your high-level advice to investors in these kinds of markets?
Ms. Finney-Cooke: It’s true that the year so far has been marked by the market’s recurring volatility, almost to the extent we’re normalizing the different shocks to the system, whether it be tariffs, the Middle East, interest rates, or inflation. In extraordinary markets like this one, it’s crucial that investors stick to their strategic allocation plans.
Mr. Digenan: We know how dangerous knee-jerk reactions to volatility can be for a portfolio’s well-being. On the other hand, for investors who remain disciplined and maintain a strategic asset allocation, volatility can prove to be an opportunity.
How do you suggest investors position their portfolios in these rather uncertain times?
Mr. Digenan: The best approach is always diversification. It’s a key tenet of our investing philosophy at CBIS. When we’re building portfolios, we really believe that adding additional asset classes and multiple managers uncorrelated in their performance is the best way to benefit investors over the long run.
Ms. Finney-Cooke: And we’re always thinking about the rationale of portfolio construction from a risk-return and key objective perspective. Regular review helps ensure we’re not making any broad, large movements that can be counterproductive to a portfolio.
Is it possible to construct portfolios that adapt to different economic conditions around the world?
Mr. Digenan: The easiest way for investors to opportunistically take advantage of these changing conditions is to maintain a disciplined rebalancing process.
Ms. Finney-Cooke: That said, remaining disciplined around rebalancing is more difficult than people might think. In practice, you’re rebalancing into asset classes that haven’t done so well while selling out of asset classes or strategies that have. While the process is altogether counterintuitive, it goes a long way toward mitigating risk and preserving capital.
Are there certain allocation choices that might stabilize portfolios in rapidly changing market environments like the one we’re in?
Ms. Finney-Cooke: We’re in favor of having multiple asset classes through the capitalization ranges in the equity market, as well as various strategies within the fixed income. And that would be both from a U.S. and non-U.S. standpoint. Additionally, we believe alternative asset classes can also add a good deal of value to a portfolio. We like to think of it as similar to building a house. You want to make sure that you have a strong blueprint and that you evaluate all the options before you solidify and then implement.
Do you think portfolios can be designed in a way that might reduce reactive decisions in volatile markets?
Mr. Digenan: The best way to design a portfolio to reduce reactive decisions in volatile markets isn’t really in the design of the portfolio, it’s in the execution of the process. We’re all human and we’re all subject to some degree of behavioral bias. This is why we all need a process that’s as objective as possible. In addition to taking a long-term approach, one of the things we find very valuable is having a rebalancing policy that’s more mathematical in nature. A stable strategic asset allocation policy together with a sound rebalancing policy is the best way I can think of to help buy low and sell high.
Ms. Finney-Cooke: I think the main message here to investors is to be thoughtful about their asset allocation, making it strategic and long-term in nature while considering the opportunities that may exist around the edges.
Important Information
All material of opinion reflects the judgement of the Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold, or sell any financial instrument or investment advisory services.