2011-5-16 Lederer PWM Portfolio Strategy Update

8/6/2019 2011-5-16 Lederer PWM Portfolio Strategy Update

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Portfolio Strategy Update: May 2011

Providing customized solutions for long-term financial objectives

For the past several weeks, I have been altering the composition of client portfolios, transitioningthem to a more defensive posture. This piece discusses the reasons for the changes and detailsthe specific investment decisions.

Issues / Concerns

1) The broader economy and the s tock marke ts m ay lose momentum wi th U.S . fi s ca land m onetary s t imulus be ing sca led back.

In developed economies such as the United States, the economic recovery from the GreatRecession has been mediocre at best. One would expect this weaker growth following a financial

crisis. For the past year and a half, I have cited empirical data from studies performed byMcKinsey Global Institute and Reinhardt/Rogoff (in their bookThis Time is Different, to whatsome have referred as The Bible for analyzing financial crises). The data indicate how a lengthydeleveraging (i.e., debt reduction) period nearly always follows a banking crisis, creating asignificant headwind to vibrant economic growth.

Since almost every financial crisis results from an excessive build-up of debt, it is common toobserve declining credit growth after a crisis because: i) debtors are unable to borrow against lessvaluable assets (think home prices), and ii) banks are unwilling and/or unable to lend becausetheir balance sheets contain a higher proportion of delinquent loans.

In the United States, negative private sector credit growth has constrained the strength of theeconomic recovery. As Table 1 illustrates, this post-recession credit growth is in stark contrast tothat during the typical post-World War II recovery, during which time borrowers and banks werein much better financial shape.

Table 1

The Role of Private Sector Credit Growth in Post-WW II Recoveries

GDP DECLINE GDP GROWTH PRIVATE SECTOR

DURING IN RECOVERY CREDIT GROWTH

RECESSION (FIRST 18 MONTHS) (FIRST 18 MONTHS)Q4 1969 Q4 1970 -0.2% 8.8% 15.4%

Q1 2001 Q4 2001 -0.3% 2.7% 12.7%

Q2 1960 Q1 1961 -0.5% 9.7% 13.6%

Q3 1990 Q1 1991 -1.4% 4.8% 5.5%

Q4 1948 Q4 1949 -1.6% 16.7% 23.4%

Q1 1980 Q3 1980 -2.2% 1.4% 17.0%

Q2 1953 Q2 1954 -2.5% 9.9% 19.5%

Q3 1981 Q4 1982 -2.6% 11.7% 18.6%

Q3 1957 Q2 1958 -3.1% 9.8% 16.7%

Q4 1973 Q1 1975 -3.2% 7.5% 11.9%

Q4 2007 Q2 2009 -4.1% 4.5% -6.2%

RECESSION PERIOD

Data Sources: U.S. Bureau of Economic Analysis and U.S. Federal Reserve


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To try and counteract the private sector credit decline, the federal government has increasedspending by nearly 25% since early 2007. However, because of lower tax revenues due to themore-sluggish economic conditions, the higher spending has led to sizable fiscal deficits and arun-up in the national debt.

At the same time, the Federal Reserve (Fed) has attempted to stimulate more credit growth by:i) cutting its short-term target interest rate to virtually zero and ii) expanding its balance sheet atan unprecedented scale via two rounds of quantitative easing (QE), where it has created

additional reserves out of thin air (essentially printing money) and purchased U.S. Treasury andmortgage-backed debt securities in an effort to drive down longer-term interest rates.

Figure 1

Fed Balance Sheet & Federal Government Spending: Q1 2007 Q1 2011

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Federal Reserve Bank Credit (LHS) Federal Government Spending (RHS)

An unprecedented amount ofmonetary and fiscal stimulus

have been deployed to offset theprivate sector deleveraging.

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Figure 2

Current Economic Recovery vs. Average of Prior Post-WW II Recoveries

Even with the huge doses ofstimulus, the current recovery

has lagged the average post-WWII recovery by a wide margin.

Data Sources: U.S. Bureau of Economic Analysis and U.S. Federal Reserve

Avg Post-WW II

Recovery

Current

Recovery


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Case-Shiller Housing Price Index (LHS) U.S. Unemployment Rate (RHS)

Despite the flood of fiscal and monetary stimulus, the economic recovery has been

mediocre at best (see Figure 2 on previous page), with unemployment remaining stubbornlyhigh and the housing market still well off 2007 levels.

Figure 3

Housing Prices & Unemployment: 2007 - Present

The flood of monetary andfiscal stimulus has done littleto improve U.S. housing

prices and unemployment.

While the Feds highly accommodative monetary policy has been unsuccessful driving downunemployment and increasing housing prices, it has helped spur a dramatic rise in commodityprices, particularly food and energy prices. As a result, inflationary expectations have risen sincethe implementation of QE2 last November (see Figure 4 on next page).

Although the Fed does not appear eager to raise interest rates to address the risk of risinginflation, Chairman Bernanke has signaled an end to QE2 in June, with the program expected tocompletely wind down toward the end of the year. In addition, Bernanke has explicitly said therisks of implementing QE3 outweigh the potential benefits at this time. The bottom line is thata major source of monetary stimulus is ending within the next few months.

Meanwhile, federal, state, and local government spending will either have to be cut and/or taxeswill have to be raised if lawmakers want to avoid a looming fiscal debt crisis. When Standard &Poors placed U.S. sovereign debt on negative watch last month, it was a painful reminder thatfiscal austerity measures may have to be enacted in short order. Since U.S. government

expenditures (including transfer payments) currently comprise roughly one-third of U.S. GDP,cutbacks and/or higher taxes will likely create a near-term drag on economic growth.

Data Sources: U.S. Bureau of Labor Statistics and Standard & Poors


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5-Year TIPS Spread UMich 5-Year UMich 1-Year

Figure 4

Inflation Expectations Since Announcement of QE2

Inflationary expectations haverisen across the board sincethe announcement of QE2.

A big debate right now is whether the fragile U.S. economy is healthy enough to stand on its ownonce the Fed and federal/state/local governments scale back their huge doses of stimulus. I donot believe that it is, and some signs in the bond market would appear to support this view.

2) Ominous s i gns in the bond m arke t ra i se doubts about the sus ta inab il it y of theeconomic recovery.

At the outset of QE2, the Fed indicated that it would purchase $600 billion of U.S. Treasurybonds in monthly installments between November 2010 and June 2011. Since the beginning ofQE2, the Fed has gobbled up 96% of net new Treasury issuance.

With the Fed now about to exit the picture, many predict that interest rates will have to increasein order to attract new Treasury buyers to fill the gap left by the Fed. Indeed, PIMCO, abehemoth, globally renowned, bond fund manager, has publicly declared that it has sold all U.S.

Treasuries in its flagship bond funds due to concerns about rising Treasury yields (and fallingbond prices since prices and yields move inversely) once QE2 is over.

The end of QE2, coupled with the rising inflation expectations mentioned previously, hasdrastically reduced sentiment for Treasury bonds. After huge demand for bonds throughout2009 and late into 2010 (even as stocks were outperforming bonds by a large margin), bond fundflows have slowed substantially during the past six months.

One would think that these developments (not to mention the long-term fiscal deficit situation)would have started to drive Treasury rates higher in anticipation of QE2 ending. However, it has

been quite the contrary. Intermediate- and long-term Treasury rates have actually been decliningfor the past several months. I view these rate moves as a potentially ominous sign for theeconomy (and hence riskier asset classes) because the bond market has traditionally been a fairlyaccurate predictor of economic weakness.

Data Sources: U.S. Treasury Department and University of Michigan Consumer Sentiment Survey

1.2%

2.2%2.2%

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2.8%3.0%


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Figure 5

Ominous Signs in the Bond Market?

With in flat ionexpectat ions on

the rise

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5-Year TIPS Spread UMich 5-Year UMich 1-Year

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INFLATION EXPECTATIONS SINCE QE2

TOTAL NET BOND FUND FLOWS* SINCE 2009

bond buyers ha velarge ly d isappeared .

M

illions

Data Sources: U.S. Treasury Department and University of Michigan Consumer Sentiment Surve

Data Source: Investment Company Institute

* Bond fund inflows, net of stock fund inflows


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Figure 5 (Cont.)

But the Fed hasstepped in to purchase96% of the net Treasu ry

is suance s ince QE 2.

FEDERAL RESERVE U.S. TREASURY PURCHASES (IN AGGREGATE BY MONTH) SINCE QE2

U.S. GOVERNMENT DEBT-TO-GDP RATIOS SINCE Q1 07

H owever, with the Fed about to s tart wind ingdown i ts Treasury purchase s , and w ith U.S .

s tructura l de fic i t and sovereign debt issues

Data Sources: U.S. Treasury Department and Federal Reserve

($s in billions)

96%

Data Sources: U.S. Bureau of Economic Analysis and U.S. Federal Rese

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Figure 5 (Cont.)

T he fact they have beendec lin ing ma y be a

precu rsor to s lowin geconomic g rowth.

10- AND 30-YEAR U.S. TREASURY RATES SINCE ANNOUNCEMENT OF QE2

one would have expected long er-term interestrates to have risen m ore recently.

Data Source: Yahoo! Finance

10-Year

Treasury

Rate

30-Year

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Rate

Did you happen to read

this story in the March

issue of Time magazine?

March 1972 that is

CATCHING UP ON CURRENT EVENTS?


8/19

Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

U.S. Euro Area Japan EMs

3) Strong economic g rowth in emerg ing marke ts (EM s) i s li ke ly to dece le ra te a s EMpolicyma kers take m easu res to s low ris ing inflat ion in their countries .

Besides the headwinds from the incremental withdrawal of U.S. monetary and fiscal stimulus,decelerating growth in EM economies may present challenges for riskier asset classes. Since late2009, robust economic growth across most EMs has fueled the global economic recovery,outpacing growth in developed markets by a wide margin (see Figure 6). However, most EMeconomies are now in danger of overheating, and measures to slow rising inflation will no doubtlead to decelerating EM economic growth.

Figure 6

GDP Growth (Annualized by Quarter): Q4 2009 Q4 2010

QE and Its Impact on Emerging Markets

To keep their exports more competitive on the global stage, mercantilist EM countries(particularly China) depend a great deal on lower currency exchange rates. During the pastseveral years, though, the Feds QE programs (and lesser-discussed QE programs in Europe and Japan) have created some significant challenges for EM policymakers trying to stave offcurrency appreciation. Since the Feds extremely loose monetary policy has created a hugetailwind for U.S. dollar depreciation, EM countries have had to either increase their own money

supplies and/or recycle reserves back into the United States via U.S. Treasury purchases toprevent their currencies from rising too much.

Data Source: Trading Economic

{EM figures are a weighted average forcountries in the MSCI EM Index}.


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U.S. Euro Area Japan EMs

Figure 7

Year / Year Inflation Rate (by Month) Since Announcement of QE2

Extremely accommodative monetary policies in developed marketshave led to higher inflation levels across most EM economies.

Thus far, most EM policymakers have taken their time addressing the rising inflation becauseefforts to combat rapidly escalating prices would ultimately lead to exchange-rate appreciation,which would adversely impact export growth. Figure 8 (top of the next page) illustrates howreal interest rates across most EMs are either negative or barely positive arguably not highenough to curtail the inflationary pressures.

However, because policymakers understand that rising inflation can spur social unrest (it is not acoincidence that the Middle East uprisings started after food prices jumped considerably), they are starting toconfront the issue by raising interest rates and/or allowing their exchange rates to rise. Thesetightening measures are almost certain to slow the rate of growth in EM economies.

As one can observe from Figure 9 (bottom of next page), EM stocks have lagged those indeveloped markets since late November, plausibly in anticipation of slower economic growth.These slowing EM economies may lead to a deceleration in global growth later this year.

Data Source: Trading Economic

{EM figures are a weighted average forcountries in the MSCI EM Index}.

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Because most EM economies exited the Great Recession in much better financial shape (e.g.,lower unemployment, modest debt levels, and healthy banking systems) relative to the overlyindebted developed-market economies, the increased money supply/higher excess reserves inreaction to the Feds QE programs have functioned like an inflationary tinder box. Figure 7illustrates how inflation in EM countries has been much higher relative to that in the UnitedStates, Euro Area, and Japan since QE2 was implemented.


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Figure 8

Real Interest Rates* Across Emerging Markets

Most EM countries will almostcertainly need to tighten

monetary policies during thenext few months to address

inflationary pressures.

Data Source: Trading Economics

* Re a l interest ra te def ined as thebenchm ark interest ra te , less the12-month cha ng e in infla t ion.

Figure 9MSCI EM Index vs Russell 3000 Index (Nov. 2010 Present)

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EM stock market underperformance sinceNovember may be a precursor to slower

EM economic growth later this year.Russell 3000

MSCI EM Index


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4) H istorical trends do not bode wel l for the s econd half of 2011.In addition to the economic headwinds noted thus far, historical trends are not supportive forriskier asset prices later this year. As I noted in the Lederer PWM 2011 Outlook, almost everyshort-term (cyclical) bull market within a longer-term (secular) bear market has fizzled outbefore reaching 9 quarters. Since the most-recent cyclical bull started in early March 2009, earlyJune would mark the 9-quarter mark.

Moreover, the Ned Davis Research S&P 500 Cycle Composite for 2011, which the stock markethas generally followed this year (other than the short-term pullback caused by the Japanearthquake), exhibits weakness during the second half of the year (see Figure 10).

Figure 10

The Ned Davis Research (NDR) S&P 500 Cycle Composite for 2011

Should the stock market continue to followthe NDR Cycle Composite for 2011, asecond-half correction would occur.

Data Source: Ned Davis Researc

JapanEar thquake

Cycle Composite

Equal-weighted Average of

One-, Four-, and 10-year Cycles

2011

YTD


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A 1 1

Investment Actions

This section details the specific investment decisions made to reduce portfolio risk.

1) Sold U.S. sm al l - and m id-cap s tocks These traditionally riskier asset classes have benefitted disproportionately from the Fedsexceptionally loose monetary policy, which has not only increased liquidity in the financialsystem, but also provided greater incentive to take risk (since holding cash earning less than

inflation is not an attractive long-term option investors are thus forced to go out on the riskspectrum). As Figure 11 shows, small-cap stocks have outperformed larger-cap names by a widemargin during the past decade, when the Fed frequently held rates below the rate of inflation.

Figure 11

Relative Return of U.S. Small-* vs. Large-Cap* Stocks: Aug. 2000 April 2011

Data Source: Yahoo! Financ

Shaded areas represent

periods of negative

U.S. real interest rates

* S&P 600 Index used to represent small-cap stocks; S&P 100 used to represent large-cap stocks.

U.S. small-cap stocks have outperformed

large-caps by a wide margin during the pastdecade, during which time the Fed keptmonetary policy highly accommodative.

Now, after a long period of outperformance, small- and mid-cap valuations are significantlyricher than those of larger-cap stocks. And, with liquidity likely to be scaled back (due to the endof QE2) and almost every central bank (particularly EM central banks) tightening theirmonetary policies, I think small- and mid-cap asset classes may underperform given their already

lofty valuations (relative to larger-cap names).


13/19

2) Cut EM equi ty pos i tionsAlthough I am bullish on EMs longer-term, I am concerned that they could experience greaterdeclines should the stock market sell off during the next 3-6 months. For example, during thevicious bear market from late 2007 through early 2009, the MSCI EM Index declined nearly70%, while the S&P 500 fell by 55%. This underperformance occurred despite the fact EMeconomic fundamentals were more favorable to those in most developed-market economies.

While a global growth slowdown would relieve some of the inflation pressures in the EMs(reducing the need to tighten monetary policies as rigorously), I believe it would still be a netnegative for EMs because many rely upon larger industrialized countries to purchase theirexports, a huge growth driver in many EM economies. If the larger developed-marketeconomies are in worse shape, the ripple effects would almost certainly be felt in the EMs.

3) Purchased long-term bonds (an tic ipated 3-6 m onth holding period)Given my concerns about slowing economic growth, I purchased positions in two exchange-traded funds that hold long-term bonds (the PIMCO 25-year Zero Coupon U.S. Treasury IndexETF and the Vanguard Long-Term Corporate Bond ETF). I think that these positions wouldlikely perform well should riskier asset class prices decline.

Obviously, there are risks to holding long-term bonds in the current environment. The biggest,in my opinion, would be if U.S. inflation started to really accelerate. Though I believe higherinflation will ultimately result from this countrys profligate policies, I do not think it willbecome a problem during the next 3-6 months.

Despite the Fed expanding its balance sheet (a potentially harmful inflationary risk becausebanks have significantly more reserves against which to lend), inflation has yet to pick upbecause credit growth has been virtually nonexistent. Again, the lack of loan demand is not

surprising on the heels of a financial crisis, when cutting debt is a top priority for an over-leveraged consumer facing an environment consisting of high unemployment and lackluster wage growth. Thus, the reserves created by the Fed have remained trapped in the bankingsystem and are not flowing out into the economy. To quote BCA Research, the Fed is pushingon a string trying to stimulate the economy via strong private sector credit growth (see Figure 12on next page).

Of course, if loan demand was to pick up and if banks were to start deploying their reserves bylending en masse, then the tinder box created by the Fed when it expanded banking reserves atan exponential rate would be ignited, and inflation would certainly follow. However, given the

historical post-crisis precedents, coupled with still-weak real estate markets (both residential andcommercial) and an over-indebted consumer worried about the employment situation, I viewthis risk as remote through the end of this year.

In light of current Fed policy, rising commodity prices, particularly food and energy prices,could also drive underlying inflation higher, negatively impacting long-term bond prices. Whenone looks at recent inflationary expectations (refer back to Figure 5), the risk would appear to belegitimate. Yet, I think rising near-term inflation is unlikely to become a problem because of thecurrent employment climate, where workers have little bargaining power to ask for higher wages.As Gluskin Sheff s David Rosenberg has shown, wages are a key determinant of consumer price

inflation (see Figure 13 on page 15).


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Figure 12

The Fed Pushing on a String?

loan growth hasremained s lugg ish .. .

U.S. EXCESS BANK RESERVES: 2008 - PRESENT

YEAR / YEAR BANK LOAN GROWTH: 2008-2010

Th ough ba nks are s i t tingon a boat load of e xcessreserves (ag a inst whichthey can lend)

Billions

Data Source: U.S. Federal Reserve

Data Source: FDIC


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Figure 12 (Cont.)

w hile the velocity ofm oney* rem ains we l l

below p re-cris is levels .

VELOCITY OF MONEY IN THE UNITED STATES: 2001-2010

Data Source: St. Louis Fed* Velocity of money is the rate of turnover in the money supply.

Figure 13

Relationship Between Private Sector Wages and Core CPI: 2001-2011

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Q111

Y

/

Y

%

C

H

A

N

G

E

Private Sector Wages & Salaries Core CPI

Wage growth appears to be a keydeterminant of core consumerprice inflation. In an environment

of tepid wage growth, it wouldseem difficult for underlyinginflation to rise dramatically.

Correlation = 72%

1.6%


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0

1

2

3

4

5

6

Jan-90

Aug-90

Mar-91

Oct-91

May-92

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Jul-93

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Jul-00

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Apr-02

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May-06

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E

X

P

E

C

T

A

T

I

O

N

David Rosenberg has also made an incredibly astute observation regarding inflationaryexpectations in recent years. Specifically, during the past several decades, whenever consumershave anticipated inflationary spikes, the subsequent 12-month inflation rates have turned out tobe substantially below the expectations. Considering the jobless recoveries of the past twodecades (where workers have had less-and-less bargaining power to demand higher wagesbecause of an increasing labor pool from EM countries), it is not a huge surprise that surgingcommodity prices, which almost always trigger higher inflationary expectations, have eaten into

consumer purchasing power because the higher food and energy prices function like a tax. Withthe S&P GSCI Commodity Index up nearly 30% in the six months since QE2 was unveiled, Iwould not be surprised to see commodity prices drop from current levels, decreasing inflationpressures and helping bond prices.

Figure 14

Univ. of Michigan Consumer Survey: 12-Month Inflation Expectations vs. Actual

Data Sources: University of Michigan and U.S. Bureau of Labor Statistics

Whenever inflation expectations havespiked up during the past two decades(mostly because of rising commodity

prices), actual inflation has beensignificantly less than expected.

Another big risk to holding long-term bonds during the next 3-6 months would be if the bondmarkets reach a riot point where investors refuse to lend to the U.S. government at such lowrates because of increasing default risk. Though I think this concern is certainly a credible one, it

would appear to be a longer-term risk, especially considering the fact U.S. Treasury rates havefallen since Standard & Poors put U.S. sovereign debt on negative watch.

2.8%1.4%

-2.0%

?

Actual 12-Month

Change in Inflation


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50%

60%

70%

80%

90%

100%

($30,000)

($20,000)

($10,000)

$0

$10,000

$20,000

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Feb

-09

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Nov

-10

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Apr

-11

,

($

)

Bond Inflows, net of Stock Inflows Bond Returns Relative to Stock Returns

Then there is the risk that Fed Chairman Bernanke comes out and signals QE3. However, giventhe increasing criticism the QE policies have invoked, I do not believe the Fed would announceQE3 unless the stock markets suffered a 15%+ decline from current levels. Should such ascenario play out, bond prices would likely benefit in the interim.

I am including several pieces of anecdotal evidence to support the long-term bond purchases.First, when I attended a presentation by the aforementioned David Rosenberg several weeksago, he opened his talk by asking the audience of 500 investment managers how many thought

interest rates would increase during the next 12 months. Practically everyone in the room raisedtheir hand. When asked how many thought rates would decline, only a handful responded. Ifound this scene quite indicative of how virtually every investment manager has followed in thefootsteps of PIMCO, positioning for higher rates. I quickly recalled legendary former MerrillLynch equity strategist Bob Farrells 10 Market Rules to Remember, one of which says thatwhen all the experts and forecasts agree, something else is going to happen. Moreover, thispast week while at the CFA Institutes annual conference, which is attended by investmentprofessionals from around the world, people responded with great surprise whenever I toldthem I recently purchased long-term U.S. bonds.

Figure 15

Net Inflows Into Bonds & Bond Returns Relative to Stocks: Feb. 2009 April 2011

Data Sources: Investment Company Institute and Yahoo! Finance

Investors piled into bonds from early2009 through late 2010 as bonds

underperformed stocks by a wide margin.Now, sentiment toward bonds is low.


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Analyzing fund flows since the stock market rally began in March 2009, one can observe howsentiment toward bonds has decreased significantly since late last year (see Figure 15 on theprevious page). One will also notice how bonds underperformed stocks by a wide margin as thepublic piled into bonds. Now, with the opposite phenomenon occurring, will bonds outperformstocks during the next six months?

4) Added to Long U.S. Dollar Posit ionsWith the Fed essentially printing money and leaving its target interest rate at zero, the trade-weighted dollar has been shellacked since the start of QE1 (see Figure 16). With other centralbanks raising rates, investors have been flocking away from the dollar and into higher yieldingcurrencies and precious metals.

Figure 16

Trade-Weighted Dollar and Gold Prices: 2009 Present

Data Sources: U.S. Federal Reserve and Yahoo! Finance

The U.S. dollar has been devaluedsubstantially since the Fed began its

quantitative easing programs.

$6

$7

$8

$9

$10

$11

$12

$13

$14

$15

$16

90

95

100

105

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120

Jan-09

Feb-09

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Jun-09

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Jan-10

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Broad U.S. Dollar Index iShares Comex Gold ETF


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The negative dollar sentiment has been widespread following such a large decline. And althoughI am bearish on the greenback long-term as long as Ben Bernanke is Fed Chairman and TimothyGeitner is U.S. Treasury Secretary, I think there is a more-than-likely chance the dollar could rallyshorter-term in anticipation of the Fed starting to wind down QE2. Furthermore, should theglobal economy begin to slow, investors may decide to seek safe haven in the dollar, which is stillthe worlds reserve currency.

Additionally, I believe there is a fairly strong chance the European Central Bank (ECB) and Bankof Japan (BOJ) may start to increase their money supplies at a faster pace than the United Statesduring the next 3-6 months. The ECB is probably going to have to print more euros in order topurchase the debt of the profligate PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain)to prevent a European banking crisis (many undercapitalized European banks hold PIIGS debt this is why the inevitable PIIGS sovereign debt defaults have been delayed). Meanwhile, theBOJ may continue to inject liquidity as Japan rebuilds from its devastating earthquake.

Similar to owning long-term U.S. bonds, being long the greenback could backfire if foreigninvestors lose faith in the governments ability to rein in deficit spending and/or the Feds ability

to tighten monetary policy. However, I view these risks as unlikely during the next 3-6 months,especially if the global economy was to slow.

Lederer PWM cannot guarantee

any of the forecasts discussed in

this portfolio strategy update

2011-5-16 Lederer PWM Portfolio Strategy Update

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