June Rebalance Update

Introduction

Over the course of 2022, markets have been adjusting to new market conditions - capital was cheap and now it’s expensive.* In the depths of the Covid-19 crisis in 2020, the yield on 10 year Treasury securities was <1%, and now the yield is 3.24%. Additionally, the average 30 year fixed rate mortgage in the US has gone from less than 3% to above 5% all in the last 6 months.  

In response to these changing market conditions, asset prices have fallen sharply led by growth stocks and crypto. The Nasdaq 100 is down more than 30% while BTC and ETH are both down more than 50% since the beginning of the year.

So how did we get here? 

In 2020, in response to the Covid-19 pandemic, governments around the world deployed massive fiscal and monetary stimulus to replace the economic activity lost because of global lockdowns. Interest rates were reduced to 0% and capital was plentiful.

The money printed by governments flowed into many asset classes including real estate, equities (especially those benefiting from remote work), start ups, and crypto. 

Fueled with newfound wealth driven by stimulus and appreciating assets, as the economy reopened the demand by consumers for goods and services outpaced supply, still constrained by supply chain bottlenecks. This dynamic, as well as Russia’s invasion of Ukraine, which exacerbated supply chain related price increases in oil and food, caused the worst inflation in the United States in 40 years.

Now, the Federal reserve has made it a priority to fight inflation at all costs via raising interest rates and quantitative tightening, which removes liquidity from markets.  These actions of the Fed have reversed the easy operating environment investors have enjoyed for almost 10 years. 

In response to this new environment - characterized by inflation, rising interest rates, quantitative tightening and a slowing economic growth - we made a series of changes to our managed portfolios.  Below is a brief summary of these changes and you can view your post-rebalance holdings in your account by using the Domain Money App. 

Also, as a result of this rebalance, you may have a small cash position in your managed portfolio(s) that will be reflected in your holdings displayed in the Domain Money App. 

Domain Core

Our flagship 100% stock portfolio. Focused on companies driving technological innovation.

We rebalanced the Domain Core managed portfolio towards names we believe offer high growth, positive operating margins and real earnings in this new economic environment. Accordingly, we sold many of our holdings in companies with negative operating margins such as Elastic, Twilio, Peloton Interactive and Okta. We think that names that have proven business models generating positive earnings are best positioned to deal with higher costs of capital. We initiated two new positions, Tesla and Zoom Video Communications. Both companies benefit from secular trends, have demonstrated robust growth rates and have positive earnings.

Additionally, we believe this environment benefits companies already operating at scale, such as Microsoft, Tesla, Alphabet, Paypal Holdings and Uber Technologies. These companies have proven product market fit and do not require capital infusions to sustain growth.

INITIATED: Tesla (TSLA), Zoom Video Communications (ZM)

SOLD: Lowe’s Companies (LOW), Twitter (TWTR), Elastic (ESTC), Roku (ROKU), Twilio (TWLO), Upwork (UPWK), Coinbase Global (COIN), Peloton Interactive (PTON), Okta (OKTA), Netflix (NFLX)

Domain Edge

Our flagship 100% crypto portfolio. Turnkey exposure to the emerging crypto asset class.

Significant capital entered the crypto market driven by global accommodative fiscal and monetary policies. We have adjusted the Domain Edge portfolio to position for some of this to unwind. While we are still strong believers in the long term case for crypto and blockchains, we are increasing our emphasis on the largest cryptocurrencies ether and bitcoin, which have a longer and more robust track record of retaining value as compared to other parts of the crypto market. In particular, we are believers in the long term potential of Ethereum and believe that it has significant upside as the global settlement layer of the blockchain economy.

INITIATED: None

SOLD: The Graph (GRT), Yearn.Finance (YFI), Uniswap (UNI), Decentraland (MANA), Fantom (FTM)

Proceeds from sales were reinvested in existing positions in the Domain Edge strategy.

Domain Access

A novel portfolio that targets 80% stocks and 20% crypto. Invest in innovation across both asset classes.

Changes in the asset level weights of Domain Core and Domain Edge were also made in Domain Access. Additionally, we rebalanced back to 80% stocks and 20% crypto.

INITIATED: Tesla (TSLA), Zoom Video Communications (ZM)

SOLD: Twitter (TWTR), Elastic (ESTC), Roku (ROKU), Twilio (TWLO), Upwork (UPWK), Peloton Interactive (PTON), Okta (OKTA), Netflix (NFLX), The Graph (GRT), Yearn.Finance (YFI), Uniswap (UNI), Decentraland (MANA), Fantom (FTM)

Domain Balanced

An innovation focused portfolio that targets 50% stocks and 50% crypto.

Changes in the asset level weights of Domain Core and Domain Edge were also made in Domain Balanced. Additionally, we rebalanced back to 50% stocks and 50% crypto.

INITIATED: Tesla (TSLA), Zoom Video Communications (ZM)

SOLD: Twitter (TWTR), Elastic (ESTC), Roku (ROKU), Twilio (TWLO), Upwork (UPWK), Peloton Interactive (PTON), Okta (OKTA), Netflix (NFLX), The Graph (GRT), Yearn.Finance (YFI), Uniswap (UNI), Decentraland (MANA), Fantom (FTM)

Domain Metaverse

A portfolio uniquely crafted with both crypto and stocks for exposure to the growing Metaverse.

This strategy is a thematic strategy specifically designed to invest in the infrastructure associated with the growing metaverse. At this time, we did not make any asset level changes to this strategy because we think the strategy is appropriately positioned to provide exposure to the infrastructure powering the metaverse. We rebalanced the strategy back to 50% stocks and 50% crypto.

We thank you for entrusting us with your capital and welcome any questions.


* Important disclosures: Market pricing information is sourced from Yahoo! Finance, Ycharts, nonfungible.com, theblockcrypto.com, duneanalytics, NonFungible Yearly NFT Market Report 2021, ethhub

**Domain Money Advisors, LLC is providing this information for informational purposes only. While Domain Money Advisors, LLC believes that the information contained herein is reliable and derived from reliable sources, it makes no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information. Domain Money Advisors, LLC, and its parent company, Domain Money, Inc., expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed. The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities or cryptocurrency, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service.  Investing comes with inherent risks and you should always invest within your means and risk tolerance.  Past performance is not an indication of future returns and you should always consult a financial advisor prior to making investment decisions. Please see important disclosures at https://domainmoney.com/legal