While the global banking system has been rocked by the news of the collapse of two large U.S. banks, Silicon Valley and Signature Bank, regulators were swift in their response to raise capital to protect insured and uninsured depositors alike. The banking failures we are seeing today are different from those of 2008 and can be directly linked to one of the fastest rate hike cycles since the 1980s.
Though it is our opinion that both banks should be seen as outliers when compared to the banking system at large, it does reinforce our view of remaining defensive within both our equity and fixed-income allocations.
With the anticipation of tighter financial conditions and credit supply, we further reduced our exposure to growth technology companies, a sector historically reliant on loose monetary policies, and in their place are continuing our focus towards stocks with strong fundamentals and profitability. Within our fixed-income models, we have eliminated our exposure to convertible securities and reduced our sensitivity to further interest rate movements while improving the underlying credit quality.
BFG is monitoring this situation closely and will continue to make adjustments as appropriate.
