Reducing Concentration. Broadening Opportunity. Staying Aligned With Your Plan.
A brief explanation of recent investment changes we have made, or will be making, inside client portfolios where appropriate.
We wanted to walk you through some recent investment changes we’ve made or will be making inside your portfolio and, just as importantly, the thinking behind them.
We are constantly reviewing your investments and searching for ways to try to improve the returns in your portfolio, while also reducing risk and volatility as much as possible. We want to make sure you have a clear picture of what changed and why we believe these adjustments better position your portfolio for the road ahead.
The short version
We plan to reduce certain individual stock positions over time and reinvest the proceeds elsewhere in your portfolio. These changes are intended to reduce concentration risk, continue our focus on tax efficiency, and further diversify your portfolio while keeping your overall financial plan and stock allocation aligned with your long-term objectives.
Key Takeaways
Three Priorities Are Guiding These Changes
Reduce concentration risk: Less reliance on a smaller group of individual stocks.
Continue our focus on tax efficiency: Make changes thoughtfully over time while considering potential tax impact.
Diversify your portfolio even more: Add exposure across a wider range of investments and strategies.
What Changed
Moving From Concentrated Stock Positions Toward Broader Opportunity
For many years, a small portion of your account has been invested in 20 to 25 individual stocks. This area helped improve performance and lower volatility in your portfolio. However, we believe the opportunity set is changing, and we plan to reduce these stock positions over time and reinvest the proceeds elsewhere in your portfolio.
This continues and complements the changes we have already been making over the last few years to reduce concentration risk and diversify your portfolio. As always, we are making these changes in a way that minimizes any potential tax on the capital gains from these investments. For some people, this may involve a tax strategy called a 351 exchange (more on this later).
Alongside that, we have identified what we believe are stronger opportunities that we have been adding to over the last year. These include new international stock funds, private equity, and other alternative investments. This is where we plan to focus our search for outperformance and lower volatility going forward.
Our Thinking
Why We Made This Change
A few reasons guided this decision:
1
We see fewer opportunities to outperform with large company individual stocks.
The U.S. large-cap market has become highly concentrated. Recent data suggests that roughly 4% of the stocks in the S&P 500 have been responsible for about 95% of its returns. To meaningfully beat that index, we would have to hold unusually large positions in just a handful of names, and we do not believe that is a responsible way to pursue the investment results you are looking for.
2
We want to reduce exposure to surprises in individual companies.
The pace of change driven by artificial intelligence over the last few years has been striking, and in our view, it will continue to reshape industries in ways that are difficult to predict. Holding fewer individual stocks helps reduce the risk that one company or industry has an outsized effect on your account.
3
We believe broader diversification is more appropriate today.
We believe this wider diversification not only helps provide exposure to a wider range of attractive investments, but it also allows us to continue our focus on differentiated investments that can zig when other investments zag.
4
We have access to other investments we now prefer.
We have access to attractive opportunities that were not previously available to our clients. This includes private infrastructure, private asset-backed loans, and especially private equity. Private equity in particular, is attractive and is a stock category inclusive of mostly U.S. companies. Despite that, the vast majority of investors still do not have access to it.
We believe private equity vehicles like the ones we’ve added to your portfolios over the last couple of years can play a larger role in our pursuit of outperformance. We have allocated more to these funds over the past year and expect to continue doing so moving forward.
5
We are looking for outperformance where we believe it is more likely.
Rather than trying to outpace the market by holding concentrated positions in just a few large U.S. companies, we are focusing our active decisions where we believe thoughtful selection can make a bigger difference: bonds, international markets, and private investments.
What This Means for You
Your Financial Plan Remains the Foundation
The overall goals of your financial plan have not changed. Your strategy, your risk tolerance, and your long-term objectives remain the same. Even your total stock allocation will also remain the same after these changes, just where it is placed may be changing.
As in the past, we continue to prioritize finding the best investments for you and your portfolio. We believe these adjustments are designed to reduce risk and better position portfolios to benefit from the changes rapidly occurring throughout the investment landscape.
Thank you for the trust you place in us. We take it seriously, and we appreciate the opportunity to manage your portfolio.
Thank you,
Chris, David, & Glenn
Sweeney Financial Management
Have Questions About Your Portfolio?
We would much rather talk it through than have you wonder. Please reach out if you have questions about how these changes apply to your financial plan.
Or call us at 603-625-8400.
A few important notes
These changes reflect our current views and are not a prediction or guarantee of future results. Investment strategies vary by client based on individual goals, risk tolerance, tax circumstances, and financial planning needs. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results, and diversification does not assure a profit or protect against loss in declining markets.
References to investment categories, funds, or strategies are for general informational purposes only and should not be interpreted as a recommendation for any particular client. Private equity, private infrastructure, private asset-backed loans, and other alternative investments may involve additional risks, including limited liquidity, valuation uncertainty, higher fees, and limited transparency, and may not be appropriate for every investor.
Tax strategies, including 351 exchanges, depend on each client’s individual circumstances and should be evaluated in coordination with the client’s tax advisor.