BUILT FOR FLEXIBILITY AND A GOOD DEFENSE
We are very pleased by the strong recovery in our holdings from the levels in March. For the quarterly period ended 6/30/2020 (Q2, 2020), Avalon client portfolios were positive as gains from holdings in US large cap technology stocks, gold stocks and other risk assets more than offset modest losses from equity hedges. For the first half of the year, client portfolios are at or near their all-time high valuations despite most major equity indices showing losses.
Sheltering in Place
Guided by our model, which indicated growing weakness in many risk assets, we aggressively moved to a defensive portfolio position early in the year and maintained it throughout the quarter. Towards the beginning of January, we took action to reduce client exposure to US small cap and natural resource stocks (-ex gold) and international equities as investor sentiment cooled significantly. When equity prices began to decline in late January, relative weakness in international markets and US small cap made these the ideal candidates for hedging existing US equity exposure that was tilted toward better performing large cap growth, high quality and low volatility stocks.