Quarterly Investment Review

A message from the Investment Management Team of Strategic Advisers LLC

By Brian Enyeart, CFA®,* President, Strategic Advisers LLC- First Quarter 2022 Review

First Quarter 2022: Key Takeaways


Conflict in Ukraine contributed to surging commodity prices, which added to inflation concerns and drove market volatility. 


We modestly reduced risk in client accounts by lowering international stock and high-yield bond allocations. We also maintained or added to investments that may prove resilient should inflation remain high, including commodities. 


U.S. and international stocks fell, but still outpaced investment-grade bonds. 


We believe the U.S. economy is growing and that corporate profits may rise this year. Markets may move higher as a result, but bouts of volatility are likely. 


Market Backdrop

Most major global economies in mid-cycle 

  • Despite high inflation, corporate profits grew, supported by consumer spending, manufacturing activity, and a strong job market
  • Historically, a mid-cycle environment has led to positive investment performance. 

The tragic events in Ukraine dominated the thoughts of many investors. Nevertheless, most major global economies continued to experience a mid-cycle expansion. This is hopeful because, historically, mid-cycle expansions have supported rising stocks. In the U.S., when we examine credit card activity, we can see that consumer spending has remained strong. Additionally, businesses and manufacturers continued to hire workers and raise wages for many employees. These factors have all contributed to rising corporate profits. Overseas, most countries continued to experience economic recoveries. Governments across most of the world gradually lifted restrictions stemming from COVID-19. These actions led to rising consumer spending and more jobs. Some countries, notably China, still struggle with COVID-19. 


Modestly reduced risk and added to investments that offer inflation protection  

  • Increasing exposure to commodities may help manage risk from persistent inflation. 
  • We trimmed exposure to international developed market stocks, which may help reduce volatility from the conflict in Ukraine. 
  • We added to investment-grade bonds and short-term investments, both of which can help provide stability during periods of market volatility. However, we still favor stocks over bonds in a mid-cycle environment. 


Bond markets have priced-in upcoming interest rate hikes. Therefore, bonds may experience less volatility than they did during the last few months. We have modestly trimmed high-yield bonds to manage risk in client accounts. However, we still have exposure because they have historically performed well during mid-cycle expansions. 

U.S. Stocks

Our exposure to U.S. stocks remains close to long-term target allocations. Within U.S. stocks, we have a slight tilt towards value stocks. Value stocks have historically performed relatively well during periods of higher inflation and rising interest rates. We have slightly lower exposure to growth stocks. This is because growth stocks continue to appear expensive.1 We also continue to lean more on fund managers who seek to add value via stock-specific research. Historically, they have performed well during mid-cycle expansions. We still have exposure to real estate stocks as well. These investments may benefit from an economic expansion and can offer some protection from inflation. 


Bonds fell more than U.S. stocks 

  • In the first quarter, both U.S. and international stocks fell by about the same amount. .
  • International developed market stocks outpaced emerging markets despite the conflict in Ukraine.
  • Investment grade bonds experienced unusually sharp volatility due to rising interest rates, but we believe bond investors may have already weathered some of the worst of it. 

Market Performance: Quarter and One-Year 2022 Q1

Past performance is no guarantee of future results. U.S. stocks are represented by the Dow Jones U.S. Total Stock Market Index, International Developed Market Stocks are represented by the MSCI EAFE Index (Net MA Tax), Emerging Market Stocks are represented by the MSCI Emerging Markets Index (Net MA Tax), High Yield Bonds are represented by the ICE BAML High Yield Constrained Index, and Investment Grade Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. All data is as of 3/31/2022. 


Mid-cycle expansion likely to continue and inflation may ease 

  • The world economy continues to re-open from COVID-19 restrictions. As a result, we believe economic growth is likely to remain positive, keeping the U.S. economy in a mid-cycle expansion. 
  • Inflation may gradually diminish through central bank actions and easing supply chains. 

Rising prices can feel alarming. However, while inflation may slow the pace of U.S. economic growth, we believe it is unlikely to negate it. With rising wages, investments, and home values, many families may have the means to withstand higher prices. For example, the typical U.S. household spends less than 3% of its annual income on energy costs.2 In addition, the Fed shifted its approach to combatting inflation. They now plan to increase interest rates over the course of this year. Along with the Fed’s actions, easing supply chain issues and less intense consumer spending on goods may also push inflation lower. Many investors are understandably feeling anxious. Rest assured that we are closely following geopolitical developments, inflation, and many other areas that may impact investment returns. We will monitor, adjust, and rebalance your diversified mix of stocks, bonds, and other investments, driven by our deep research capabilities. We are focused on managing risk as we help our clients reach their financials goals. 

 1As measured by forward price-to-earnings ratios

2Source: National statistical agencies, Fidelity Investments (AART), as of 3/31/22.

* The CFA designation is offered by the CFA Institute. To obtain the CFA charter, candidates must pass three exams demonstrating

their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio

management, and security analysis, and must also have at least four years of qualifying work experience, among other


Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose


Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Indexes are unmanaged. It is not possible to invest directly in an index.

The views expressed in the foregoing commentary were prepared by Strategic Advisers LLC based upon information obtained from sources believed to be reliable but not guaranteed. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice. 

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

Lower-quality debt securities generally offer higher yields, but they also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Investments in smaller companies may involve greater risk than those in larger, more well‐known companies. 

Index information: Securities indexes are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Benchmark returns assume the reinvestment of dividends and interest income. Investments cannot be made directly in a broad‐based securities index.

- The Dow Jones U.S. Total Stock Market Index is a float-adjusted, market capitalization–weighted index of all equity securities of U.S.-headquartered companies with readily available price data.

- The MSCI EAFE Index (Net MA Tax) is an unmanaged, market capitalization–weighted index of equity securities of companies domiciled in various countries. The index is designed to represent performance of developed stock markets outside the United States and Canada, and excludes certain market segments unavailable to U.S.-based investors. The index returns for periods after 1/1/1997 are adjusted for tax-withholding rates applicable to U.S.-based mutual funds organized as Massachusetts business trusts.

- The MSCI EM Index (Net MA Tax) captures large and mid-cap representation across 26 Emerging Markets (EM)countries. Emerging market countries include: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With 1,401 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The index returns for periods after1/1/1997 are adjusted for tax-withholding rates applicable to U.S.-based mutual funds organized as Massachusetts business trusts.

- Bloomberg U.S. Aggregate Bond Index is a market value–weighted index of investment-grade fixed rate debt issues, including government, corporate, asset–backed, & mortgage–backed securities, with maturities of one year or more.

- The ICE BofAML U.S. High Yield Constrained Index is a modified market capitalization-weighted index of U.S. dollar-denominated below–investment–grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below– investment–grade rating (based on an average of Moody's, S&P, and Fitch) and an investment–grade–rated country of risk. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule, and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of the ICE BofAML U.S. High Yield Index but caps issuer exposure at 2%.

Fidelity ®Wealth Services provides non‐discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser.

Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

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