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Portfolio Changes and Banking News Thumbnail

Portfolio Changes and Banking News

In an effort to keep our valued investors well informed, we wanted to send out a quick notice on two important topics. First, many of you may have noticed some extra trades in your account this past week. This is a result of a portfolio change we recently made, which I will tell you more about. Secondly, as the news broke of the Silicon Valley Bank bank failure and, subsequently, the failure of Signature Bank, we thought it would be prudent to share our views on this matter.

Portfolio Changes

This week for many of our accounts (although not all), we made changes to which funds we preferred and utilized in the international developed stock sector. For years, in most of our portfolios, our main international developed fund was SPDW (SPDR Portfolio Developed World ex-US ETF). This has been an excellent option for us since 2017, with the five-year performance of this fund exceeding that of the benchmark by .31% on an annualized basis. Below you can see the performance details from SPDR’s website:

Despite a sufficient track record from SPDW, we are constantly looking for ways to improve our portfolio allocations and outcomes. In the last 5-6 years, ETFs have grown in popularity exponentially and therefore, funds that may have been too small or expensive to own in 2017- 2018 are now eligible for our use. As a result, we did a comprehensive analysis of all ETFs in the international developed sector and using more than three dozen metrics around performance, valuation, and fees; we chose to purchase IQLT (iShares MSCI Intl Quality Factor ETF). This fund provides us with similar broad exposure to the international stock market but has a bias towards companies that are profitable with strong balance sheets. 

Additionally, in our more aggressive portfolios, we replaced our international small-cap fund. We used a similar methodology to research possible replacements for GWX (SPDR S&P International Small Cap). The fund we ultimately chose as a replacement is ISCF (iShares MSCI Intl Small-Cap Mltfc). If you have any questions about these changes, please do not hesitate to reach out to your advisor.

Banking Issues

By now, I’m sure all of you have heard that Silicon Valley Bank (SVB) has failed. This marks the second largest bank failure in U.S. history.  I’m going to cut right to the chase. We do not see this as a major risk for the markets or for most banks. SVB was a unique type of bank specialized in tech companies, private equity firms, and other richly valued industries. The dramatic rise in interest rates over the past 12 months certainly hurt many financial institutions. However, SVB did a particularly bad job of managing their assets which ultimately led to their failure. I do believe that, in addition to SVB, we will see other bank failures, primarily small regional banks and banks specializing in risky industries. However, I do not foresee a widespread banking and financial collapse similar to what we experienced in 2008. The country's largest banks are highly regulated and stress tested. Their financial condition is far stronger than it was prior to 2008.

This is a good reminder, however, that FDIC insurance is limited to $250,000 per depositor per bank. Meaning if you have over $250k in one bank, it is a good idea to spread those funds to other institutions and therefore increase your protection amount.

On our side of the financial world, accounts are protected by SIPC (Securities Investors Protection Corporation). SIPC covers up to $500,000 per account and $250,000 of cash. It's important to note that you, as an account holder, own your stocks, bonds, mutual funds, etc. and that the brokerage firms (Fidelity, Schwab, TD Ameritrade, etc.) are simply custodians or record keepers. If the brokerage firm fails, you still own the securities (stocks, bonds, etc.). The SIPC would cover the cash up to $250,000 and would cover up to $500,000 of missing securities. Missing securities would only occur if the custodian were not following the protocols for record keeping. The rules around record keeping are extremely strict, and regulators pay particular attention to those protocols to make sure the custodians are in compliance.

I understand that these are complicated and perhaps confusing topics. So if you have questions, please do not hesitate to reach out to us. Thank you for your time and continued support!

Written by: Brice Carter

This commentary on this website reflects the personal opinions, viewpoints, and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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