Core Income Refresh - Rate Sensitivities

Anchoring bias and regret-aversion bias are two behavioural investment biases that can impact how an investor views existing holdings or positions. These can lead to preconceived notions or views on a company enduring, even when the available information has changed. Or the desire to not feel regret by crystalizing a negative outcome.

To combat these biases that exist in all of us, the Connected Wealth team periodically conducts what we call a “refresh”. Starting from a blank slate, each of the analytical team members independently researches each sector. If starting anew, how would you allocate money today to be best positioned for the future? Each member also reviews every position, testing the thesis.

Essentially, we answer the question: As of right now, where would you allocate capital, regardless of current allocations?

Additionally, for each company we conduct a pre-mortem. Cognitive dissonance, a behavioural bias, is a state of mind where you hold two or more contradictory ideas. The mind does not like to have inconsistent thoughts and tries to rationalize information to make thoughts consistent. However when investing, this can lead investors to miss or underweight information that is counter to your pre-existing view. A pre-mortem is a method to manage cognitive dissonance in a framework that is more constructive when investing. Pre-mortems require you to formulate how your existing thesis could be wrong, highlighting risks that could negatively impact the position.

Interest Rate Sensitivities

We find this exercise very useful in our process and thought users of our services, other portfolio managers and investors may find the abbreviated output useful. Grouping sectors into three buckets: Interest rate sensitives, Cyclicals and Defensives, this is part 1 – Interest Rate Sensitives.

 

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Learn more about Redwood Tactical Asset Allocation Fund (RTA) and Redwood Core Income Equity Fund (RDE).

Disclaimer

Charts are sourced to Bloomberg unless otherwise noted

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