Mateo Marks, MFin, CFA’s Post

Investors: Use your reimagination to build portfolios for a changing world   The 60%/40% stock/bond allocation is one of the simplest and most straightforward of diversification strategies, long relied upon for its perceived stability. But investors learned the hard way that the classic 60/40 portfolio was no match for 2022’s uncommonly broad and deep downturn in capital #markets driven by decades-high inflation and the historically tight monetary policy designed to lower – a rare market environment in which both stocks and bonds posted substantial losses. Their dual drop that year undermined a core tenet of traditional portfolio construction — namely, that diversifying among different asset classes can help mitigate risk and enhance return potential.   Though we share the conviction that peak inflation and peak interest rates are behind us, we think the future landscape for both looks more like a plateau than a steep drop from a cliff. As Fed Chair Jerome Powell noted in December’s policy meeting, much progress has been made in lowering inflation. But going the “last mile” — from current levels of 3%+ annual inflation to the Fed’s stated target of 2% — may prove to be the most challenging part of the journey. The prudent course, in our view, is for investors to prepare their portfolios for a higher-for-longer interest rate regime. In fact, a review of the effective federal funds rate over the past 70 years (See chart) makes it clear that the prevailing near-zero rate environment between the end of the 2008 global financial crisis and the beginning of the Fed’s most recent hiking cycle in March 2022 is the anomaly, not the norm.   Inflation that remains persistently above the Fed’s 2% target supports the argument for including assets like global infrastructure and private #realestate in a diversified portfolio, as both have historically provided a buffer against inflation. Likewise, a portfolio’s overall risk/return profile may potentially be enhanced by allocating to private credit and private equity, given their relatively high historical returns and low correlations to public fixed income and equities.   We propose allocating beyond the 60/40 template with a hypothetical 50/30/20 portfolio that invests 50% in equities, 30% in fixed income and 20% in alternative investments. This provides an opportunity for investors to capitalize on the differentiated asset class advantages that alternatives offer. We acknowledge that incorporating these asset classes comes with liquidity risks, but we believe the diversified exposure to more sources of risk, and more sources of return, would benefit most investors. #bigideas2024

Excellent insight from Saira as always, but one thing I am confused about is the 2% inflation target the Federal Reserve mandates. Yes its a product of CPI, core or SuperCore, which is the flavor of the month at any one point in time. However the Federal Reserve (FRB) is the base money creator in the modern Quantitative Easing Era. Post 2008 and really TARP exposed this fallacy of modern economics, they exposed themselves initially post LTCM when $3bn was going to take down the financial system...2 decades hence and we create that same amount practically every day in risk free interest on deposits. So if we take a look and break the global economies down to their base money x leverage, then this gives a pretty good indication on where risk assets can go. We have seen the FRB balance sheet assets go from $900bn to $9Tn in 25 years a 10x move! I have been around since the Greenspan era and know that the FRB along withe PWG have manipulated everything with this base assets growth. So when we see inflation base line at 2% and we compare it to the FRB balance sheet growth in regards to actual monetary inflation or annual dollar debasement via inflation its 50% higher at an annualized its 2.93% inflation not 2.00%. As far as the FRB balance sheet annualized growth is 11.21% over this same period. So why would we not continue to simply buy Real Estate, buy Equities, buy Bonds? Occams Razor suggests in all cases the simplest answer is usually the correct one and in the case of risk assets, in general its the FRB balance sheet is the only factor in the long run and 11.21% annualized expansion goes a very long way!

Navigating Market Fluctuations: A Call to Action for Investors In the ever-evolving world of investing, the debate between timing the market and staying invested has long been a topic of discussion. While some investors prefer to wait for the perfect moment to enter the market, others advocate for consistent participation, regardless of market conditions. Today, we're here to make a bold statement: it's time for both groups to step into the market. Why? The recent economic landscape has presented us with encouraging signs that indicate a shift in market dynamics. Inflation, a major concern for investors, has begun to show signs of moderation. The Producer Price Index (PPI), a key indicator of future inflation, came in significantly lower than expected, signaling a potential slowdown in price increases. This positive development suggests that the cycle of interest rate hikes may be nearing its end. The Federal Reserve, responsible for setting interest rates, has been steadily raising rates in an effort to combat inflation. However, with inflation now showing signs of easing, the Fed may be less inclined to raise rates as aggressively as it has in the past. This potential stabilization, and even reduction, of interest rates in the latter half of 2024 presents an opportunity for investors to capitalize on the potential for market growth. For investors with a long-term horizon, such as those with an investment timeframe of at least 18 months, now is the time to consider increasing their allocation to equities and bonds. Strategic Asset Allocation: While timing the market is often an elusive endeavor, strategic asset allocation remains a critical aspect of successful investing. Asset allocation refers to the distribution of your investments across different asset classes, such as stocks, bonds, and real estate. By diversifying your portfolio, you can mitigate risk and potentially enhance your overall returns. Powerful Combination Equities, also known as stocks, represent ownership in companies. They offer the potential for higher returns, but they also come with greater risk. Bonds, on the other hand, are debt instruments that provide a fixed income stream. They are generally considered less risky than equities, but they also typically offer lower returns. A balanced portfolio that includes both equities and bonds can provide a combination of growth potential and income generation. The Time to Act is Now With inflation showing signs of easing and the potential for interest rate stabilization on the horizon, now is the time for investors to step into the market. By diversifying your portfolio and making strategic asset allocation decisions, you can position yourself for long-term investment success. A disciplined investment strategy can help you achieve your financial goals. Disclaimer: This information is provided for general informational purposes only. Please consult with a qualified financial advisor before making any investment decisions.

Navigating Portfolio & InvestmentStrategies During High Inflation Periods In today’s economic landscape, investors are grappling with high inflation rates that can erode purchasing power & impact investment returns.As we navigate this challenging environment, it’s crucial to reassess & adapt our portfolio & investment strategies,providing actionable insights to help you safeguard & potentially grow your investments during high inflation periods. Understanding Inflation & Its Impact: Inflation refers to the rate at which the general level of prices for goods & services rises, leading to a decrease in the purchasing power of money.The cost of living increases,which can affect both consumers& investors. For Investors inflation can lead to: #ErodedCashValue: #ReducedRealReturns: #VolatileMarkets: Diversification Across #AssetClasses: Diversifying your portfolio can help mitigate risks associated with inflation.Consider spreading investments across various asset classes such as stocks, bonds,realestate, commodities, & preciousmetals.This approach can provide a buffer against inflationary pressures. Invest in #InflationProtectedSecurities: Treasury InflationProtectedSecurities:These are government bonds specifically designed to protect against inflation.The principal value of TIPS increases with inflation,providing a safeguard for your investment. InflationLinkedBonds:These bonds adjust their interest payments based on inflation rates,ensuring that your returns keep pace with rising prices. RealEstate & REITs: Real estate can be an effective hedge against inflation.Property values and rental income tend to increase with inflation.Real Estate Investment Trusts offer a way to invest in realestate without directly owning property,providing exposure to this asset class with added liquidity. Commodities & PreciousMetals:Precious metals, especially gold,are traditionally seen as a hedge against inflation.Allocating a portion of your portfolio to these assets can help protect against the eroding value of money. #ShorterDurationBonds:Inflation erodes the value of fixedincome returns,especially those from longterm bonds.Consider investing in shorter duration bonds, which are less sensitive to interestrate changes& provide more stability during inflationary periods. Review & Adjust Your Investment Mix Regularly: Being informed about economic trends.This proactive approach can help you stay ahead of inflation & protect your investments. High inflationperiods present unique challenges, but with careful planning & strategicadjustments,you can navigate these times effectively.By diversifying your portfolio,focusing on assets that perform well during inflation,& regularly reviewing your investmentstrategy, you can safeguard your wealth & potentially achieve growth despite rising prices. Follow ROSHAAN MAHBUBANI for more insights on #InvestmentStrategies. #HighInflation #PortfolioManagement #FinancialPlanning #EconomicTrends

Multi asset investment approaches have faced something of a winter in the last few years, with the risk-adjusted returns of diversified strategies taking an unusual icy plunge below those of pure equity investments. Here's 3 reasons why; ❄ The positive correlation between stocks and bonds, which reduces the benefits of diversification ❄ The dominance of a few large-cap stocks, especially in the US, that have outperformed the rest of the market and made diversification even within equities unrewarding ❄ The zero or rising yield environment of the last few years, which has hurt not just bonds but also dragged the performance of alternative assets and credit sectors that usually provide income and stability The chart illustrates this point. It shows the difference between the Sharpe ratio (a measure of risk-adjusted returns) of a diversified portfolio and that of a global equity portfolio. A negative value means that a global equity portfolio has done better than a diversified portfolio. As you can see, this has been the case since 2020, after the COVID-19 crisis. However, I have reason to believe that this trend is not sustainable and that diversification will pay off in the long run. Here are some reasons why winter may turn to spring for diversified investors; 🌥 Bond yields are now positive providing a backbone of yield. They also have room to fall if the economy slows down or central banks ease monetary policy. This should support bond prices and cushion any equity losses ⛅ Credit markets offer decent yields, even if spreads are tight. This should provide income and diversification benefits, especially in emerging markets and high yield bonds 🌤 Equity valuations are in some regions and sectors outside the US tech giants look reasonable or even attractive. A reversion to the mean or fairer valuation gaps to the Magnificent 7 could provide a helpful tailwind. ☀ In combination, that also paints a better backdrop for alternatives, in my view, although the battering of the last few years may take some time to shake The current environment of heightened geopolitical risk (nearly half the world is going to the polls next year) and continued economic uncertainty (there is a still consensus 50% chance of recession in the next year) as central banks gambling with inflation outcomes is not one to take concentrated bets on one asset class or region, in my view. Rather, it feels more sensible to me to spread risk across multiple sources of return and hedge against different scenarios. Over time, I believe this approach will deliver better risk-adjusted returns than a simple equity allocation. The historical average of the difference in Sharpe ratios supports this view, according to our calculations. 2024 could be a year when diversification will shine again. #assetallocation #diversification #macromatters For professional investors only. Capital at risk. It should be noted that diversification is no guarantee against a loss in a declining market.

🔔 Decades of data can't be wrong, yet the market seems to be ignoring the proven danger of an inverted yield curve — a recession indicator that's been ringing alarms for the past 18 months! 👇 🔍 What exactly is an inverted yield curve? An inverted yield curve occurs when the yields on short-term Treasury bonds are higher than the yields on long-term bonds. Typically, long-term bonds have higher yields to compensate for the risk of holding them over a longer period. When this relationship inverts, it suggests that investors have greater concerns about the near-term economic outlook than the long-term future. 📊 According to B. Riley Wealth's chief investment strategist Paul Dietrich, the inversion of the 2-10 Treasury yield has been a reliable forecaster of recessions since 1955. Despite economic resilience and the longest secular bull market in US history, Dietrich warns that a downturn is imminent. 🔮 Campbell Harvey research confirms its predictive power is eight for eight since 1968, with no false signals. This pattern indicates that a slowdown is not just possible but probable. 📈 The historical context 📈 The average time from inversion to recession onset spans 12 to 24 months, adding a layer of unpredictability to this metric. Yet, investors continue to scrutinize these signals closely as the Federal Reserve Bank of New York places a 61% probability on a recession by January 2025. 🔍 But is the economy really heading for a recession? 🔍 Despite the inverted yield curve, numerous indicators suggest a robust economy: 📈 The U.S. GDP grew by 2.5% in 2023. 🤝 CEO optimism is on the rise, with many industry leaders predicting improved conditions. 💡 Unusual governmental spending patterns could potentially stave off a recession further than typical cycles suggest. 🛡️ Strategic investment considerations in uncertain times 🛡️ In times of economic uncertainty, a strategic revaluation of investment portfolios is key. Diversification remains a tactic, but how you diversify can make all the difference. A hedge fund that is well diversified and has the ability to go long and short can offer distinct advantages. By going long, you benefit from asset appreciation during economic growth, while short positions can protect or even profit from declines, providing a hedge against downturns. This strategy is especially valuable when traditional indicators, such as the yield curve, suggest conflicting outcomes. 💡 Takeaway: In light of an inverted yield curve and mixed economic signals, incorporating versatile investment strategies such as well-managed hedge funds could safeguard and potentially enhance your portfolio's performance in these unpredictable times. 📊 Let’s discuss: Are you considering the addition of hedge funds to your portfolio? How are you adjusting your strategies in response to the current economic indicators?

Embracing Share Market Volatility: Risk or Opportunity? 📈📉 If you're wondering whether to change your investments during volatile times or seize the opportunity for greater returns, you're in the right place. Let me help you understand market volatility and learn how it can be both a risk and an opportunity! Understanding Volatility 🤔 Volatility occurs when share markets fluctuate, impacting your investments' returns, either positively or negatively. Here’s what can cause these fluctuations: Global Economy: Changes in interest rates, inflation, and other economic data 📊. Global Politics: Government elections or geopolitical tensions 🌍. Company Performance: How individual companies perform in the market 🏢. Investor Sentiment: The confidence or nervousness of investors buying or selling shares 👫. Case Study: Navigating Volatility with Managed Portfolios 📚 To illustrate volatility's impact, let’s look at two managed funds during a volatile share market: Fund A: Comprises mostly defensive assets with some growth assets (lower risk). Fund B: Comprises mostly growth assets with some defensive assets (higher risk). Initial Investment Both funds begin with the same investment value and grow at an equal rate during a steady market period. The Volatility Storm 🌩️ As economic data causes market volatility, Fund B’s unit price drops due to higher exposure to shares, while Fund A's unit price rises due to its conservative mix. Investing During Volatility 💰 Because Fund B's unit price is lower, additional investments buy more units compared to Fund A, where the unit price is higher. Another Opportunity 📈 A few months later, you invest more. Fund A's unit price has risen again, offering fewer units. In contrast, Fund B’s lower price allows you to purchase more units. The Final Stretch 🚀 Fund A’s unit price is now higher, while Fund B’s is lower. If you have invested in Fund B, you might feel nervous seeing a lower total value compared to Fund A. Recovery and Reward 🌞 Markets recover, and both funds reach a similar unit price. Thanks to buying more units during volatility, Fund B now outperforms Fund A as we reach retirement. Conclusion: The Volatility Advantage 🌟 Volatility is a normal part of investing. If you understand and are prepared for these fluctuations, you'll feel more confident in your investment decisions. Long-Term Perspective: Volatility can last for years. For short-term investors, the share market might not be the best choice. Quality Matters: Consider the quality of investments within your managed funds. Informed Decisions: Understanding volatility is crucial for your financial plan. Making informed choices can significantly impact your investment value and help you achieve your goals. Remember, when it comes to the share market, it’s not if volatility will occur, but when. Embrace it wisely, and you’ll see it can be an opportunity rather than a threat! 🌈

During a conversation with Dhruv Rathod & Rakesh Rathod 💰 about diversification I thought that this is one of the most critical factors yet the most underrated one in the financial world. So, let's understand the power of Diversification in Investment & burst a few myths too. Diversification is an edge for successful investing, and it goes beyond merely picking individual stocks. As the saying goes, "Never put all your eggs in one basket," and this philosophy holds in the world of finance. Let's explore the significance of diversification through some key data points. Investors have various options to diversify their portfolios, including stocks, bonds, commodities (such as gold and silver), and private investments. The key is not just picking winners but strategically allocating assets to mitigate risks and enhance overall returns. Examining the data between Stocks & Gold, For instance: In the 2000-2001 period, while the NIFTY index delivered a robust return, gold's return was -2.3%. A balanced 50:50 investment in stocks and gold would have resulted in a total return which would have been less, when compared to be fully invested in stocks, but would be relatively too high if invested in gold. During the 2008 economic crisis, the stock market plummeted by -52%, while gold saw a positive return of around +30%. A diversified 50:50 portfolio would have mitigated losses to around -22%. Amid the COVID-19 pandemic in 2022, the stock market faced an -18% decline, whereas gold yielded a +9% return. Once again, diversification proved its worth in providing a more resilient portfolio. Bursting some of the diversification Myths: Mutual Fund Overlap: Investing in different mutual funds within the same category doesn't necessarily achieve diversification. It can lead to increased concentration rather than spreading risk. It's crucial to look beyond fund names and understand the underlying assets. High return: Diversification doesn't guarantee consistently high returns, but it significantly enhances the probability of minimizing losses during economic downturns. It's about long-term stability rather than chasing short-term gains. Also, we should recognize that over-diversification can pose its own set of challenges. Much like anything in excess, an overly diversified portfolio may dilute the impact of investments, potentially hampering returns. Striking the right balance becomes crucial, and the ideal number of asset classes for diversification is subjective, varying from investor to investor. Diversification is an art & it’s very subjective and depends on individual to individual. Understanding the importance of diversification is essential for building a robust investment strategy. By carefully allocating assets across various classes, investors can create portfolios that are more resilient to market fluctuations and better positioned for long-term success.  #Investing #Diversification #FinancialPlanning

A very important aspect while deciding portfolio allocation and there are many other factors when you consider portfolio weightage. Have covered some factors in this blog on Tickertape https://lnkd.in/dZXubfUP

There is quite a bit of literature that the market is inherently volatile, punctuated by moments of seeming predictability. However, when viewed from a macro perspective spanning years, the market actually has predictable broad trends. That does not mean this volatility is inherently bad. In fact, these periods of volatility should be viewed as opportunities.   We embrace this volatility and adapt to it. What we recognise as volatility is the aggregated result of people being emotional and tied to sentiment, their hopes, their panic, their optimism, moving the market as an overreaction to events and trends. Sometimes this is the result of manipulation, even by state players, on a massive scale. At other times, it is the result of people seeing something in a news clip on a related counter, something on a very small scale.   We ride the swells of this volatility by keeping to a few principles. We look for well-run companies, with good market fundamentals. The numbers do not lie, unless you are looking at them in the wrong context. We consider where these companies are positioned, and pay more attention to where they are going, and not invest on the basis of legacy. That is sentiment, and sentiment is an emotional connection, not a reality of the company position.   This is where investing over an extended investment horizon really works. What we are doing is utilising the magic of compounding. This is what real investment actually is. People trying to spot a bargain, or following a hot tip are not investors. They are gamblers. Often, they are leveraged, which means they are utilising compounding the wrong way. Compounding works for the investor when it is about taking and holding a well-researched position over an extended period, letting the compounded interest of the stock generate growth. A speculator, on the other hand, is borrowing, and compounded borrowings are a quick way to lose money.   Because of this compounding effect, the best time to take a position is often when the market is down, replete with bad news. Due to market sentiment, even good stocks are undervalued. The trick is sniffing out gold from the dross in all that. There is a method to this, and it based on logic.   Firstly, we identify growth industries. For example, in a pandemic economy, we expect growth in online retail, technology, and healthcare. It does not take a genius to figure that out. In certain markets, we all consider light manufacturing, because somebody has to make all that protective equipment, gloves and masks. And obviously, the stock with the greatest growth would be pharmaceuticals. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ