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Top RIAs on The Current Investing Climate: Fidelis Capital Partners

Investment Research Analyst Nick Smith likes Japan and expanding the firm's levels of interest rate risk.

What recent investment allocation changes has your firm made?

We’ve not made a great deal of changes recently, though that will change soon in preparation for 2024. One notable step we have taken is that we’re beginning to expand our level of interest rate risk. We were essentially in cash, Treasury bills, and equivalents throughout 2022 and for the first three to six months of 2023, but I would say the firm’s stance is that long-term interest rates are much closer to their peak for this cycle than we were at the beginning of the year.

What’s your top contrarian pick at the moment?

I’m not sure you would call it contrarian, but our investment committee has had some conversations about Japan. Japan has been a bit of a forgotten market the past decade or so, but there has been a shift occurring within corporate Japan as it relates to creating shareholder value. Many of the country’s larger firms are in great shape financially, and we believe we’re getting closer to an inflection point in the U.S. dollar this cycle that benefits international companies.

In what areas of the market are you taking risk off?

Broadly, we’ve been cautious in commercial real estate and regional/commercial banks for most of the year. We’ve also been extremely conservative within fixed income last year and into 2023, and that caution has been reflected in areas of the market most vulnerable to rising interest rates. 

In what areas of the market are you putting risk on?

We’ve been gradually averaging into the equity market. Many of our clients came into the year cash heavy, so we took the weaker market over the summer to gradually average in. In specific cases, we’ve been selling puts into weakness, collecting some premium, and predetermining lower-price entry points for select high-quality names, for example, AAPL, AVGO, LLY, etc.

We’re also expanding our level of interest rate risk. Last year into the beginning of this year, we mostly stayed very short duration on the yield curve but now think it may make sense to start adding a barbell approach (begin marginally extending duration) given that longer end rates have risen.

What fund families or model portfolio providers do you use?

When we use active management, we try to do so in more inefficient areas of the market—specifically, U.S. mid cap, U.S. small cap, U.S. SMID cap—and emerging markets. We try to find unique, niche firms that typically specialize in certain segments of the market and manage pretty concentrated portfolios. We’ve had success this year with Principal Mid Cap Core, Kayne Anderson SMID, and GQG Emerging Markets.



TAGS: Equities
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