Sophie Atkinson’s Post

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.

The U.S. economy’s resilience to elevated interest rates is defying expectations, potentially sidelining hopes for rate cuts in the first half of 2024. Despite the positive outlook, investors face a dilemma as yields may fall, placing pressure on equity demand. Consider the following potential alternative investments that can help investors seek higher returns while controlling portfolio risk. ✅ Long/short funds offer simple exposure to a sophisticated strategy intended to mitigate market fluctuations, especially in a higher interest rate environment. ✅ Precious metals, such as gold and silver, have long been regarded as safe-haven assets during periods of economic uncertainty and inflationary pressures. ✅ Collar strategies offer investors a way to participate in the potential gains of riskier equities while simultaneously mitigating downside risk by using options. Consider “alternative” investments as tactical additions, not core strategies, to safeguard long-term financial goals from diverse market conditions and threats. Exercise diligence and understanding, recognizing that each alternative strategy entails its unique set of risks and considerations. Read more in my blog as I dive deeper into inflation and alternative investment options to consider.👇

How to construct a true All-Weather Macro Portfolio Investors involved in long-term macro portfolio construction are looking for the same Holy Grail: extract risk premia from markets, limit excessive drawdowns and have a portfolio whose risk-adjusted performance looks good in all possible macro scenarios. Wait a second: don’t we already have the 60/40 for that? No – and for three reasons: 1️⃣ 60/40? Or do you really mean 85/15? The standard 60-40 portfolio invests 60% in US equities and 40% in US intermediate maturity bonds. While that might seem diversified, it is not: equities explain 85% of the overall volatility of returns of the 60-40 while bonds only account for 15% of that! 2️⃣ The 60/40 portfolio only works for a limited number of macro scenarios The last 25 years and in particular the 2010s have been exceptionally good for the 60-40 portfolio, and that's why: the uncertainty and volatility around growth and inflation were extremely low. But what if the next decade isn’t going to look like the 2010s? The 60/40 portfolio inflation-adjusted returns in the 1940s or 1970s were close to 0% (yes: entire decades delivering no real return at all). 3️⃣ Your source of income (job or business) is already correlated to the S&P500: you don't need your investment portfolio to do that too! Like the 60/40, your job/business is also highly correlated to the S&P500: if earnings are growing and the stock market is doing great there is a good chance your job is safe and your business is doing well. Basically all your eggs are in one basket: your personal cash flows and your investment portfolio rely pretty much on one factor and one only. So, how does one build a truly diversifed macro portfolio instead? 1️⃣ Beta: select attackers and defenders to deal with many macro scenarios Stocks are going to be your main attackers, but pay attention to international diversification. Bonds can only protect the portfolio in certain scenarios, so you must add more defenders: commodities if inflation picks up, the US Dollar if we are deleveraging, Gold if the monetary system is getting challenged. 2️⃣ Size matters: leverage is your friend, not your enemy! Once you have a nice roaster of attackers and defenders, you want to size them so they equally contribute and make your portfolio robust against many macro scenarios. You can do that with leveraged instruments like futures, which also allow you to spend little cash for beta and have it ready for... 3️⃣ Alpha: uncorrelated return streams ...allocating to alpha strategies: a basket of strategies producing uncorrelated returns to fit different macro environments. Private equity gets you a more aggressive return stream, relative value strategies for market-neutral exposure, and allocations to CTAs and global macro which do particularly well when volatility picks up. 👍 And now you have a truly diversified macro portfolio!

Investment Strategy Focus March 2024❗️ By Edmund Shing 📖🖊️ 👉Don’t get too carried away👈 Summary 1️⃣ Beware of over-exuberance in stocks. As stock markets in the US, Japan and Europe hit fresh all-time highs, investors are easily seduced into forgetting that economic and market risks still exist. Follow the trend for now but watch for signs of trend fatigue or change. 2️⃣ Expect lower interest rates from mid-year. We now expect the Fed and ECB to cut benchmark interest rates in June and beyond as inflation eases lower. Don’t focus on current cash interest rates as these will fall, favour other asset classes with higher long-term returns. 3️⃣ Short-term bonds yield more than expected cash rates: over 2024-25, cash interest rates should thus average 4.5% in the US and 3% in the eurozone. Short-term government and investment grade corporate bonds already offer higher yields. Look to lock in higher yields for longer via short-term bond and credit exposure. 4️⃣ For higher yield in bonds, consider financial credit, asset-backed securities, emerging market sovereign bond funds: for a modest increase in investment risk, investors can achieve higher yields in Euro financial bond funds, asset-backed securities funds and emerging market government bond funds. 5️⃣ Consider lower-volatility stock strategies: global low volatility stock index funds, low volatility high dividend exposure in the European Utilities and Healthcare sectors, and higher yield or downside protected stock exposure via structured solutions. Enjoy this exciting read📖❗️ #bnpparibas #wealthmanagement #privatebanking #markets #economy #strategy #articles BNP Paribas Wealth Management - Private Banking

The 60/40 Portfolio: Rising from the Ashes The beginning of a new year ought to be a time for thoughtful strategising, yet 2023 confronted investors with a barrage of unprecedented challenges, complicating the path forward. As JP Morgan’s Jamie Dimon aptly remarked at the Future Investment Initiative conference in Riyadh, Wall Street's major banks had been “100 percent dead wrong” with their economic forecasts in the past 18 months. Adding to the investor's dilemma are clickbait headlines, posing alarmist questions about imminent market crashes or looming recessions, such as “Are we heading for the worst stock market crash since 1928?” or “Is the US economy careening toward recession?” By the way, according to the Betteridge's Law of Headlines, any headline that ends in a question mark can be answered by the word “no”. Amidst this backdrop, the classic 60/40 portfolio model (60% equities, 40% bonds), which has for some time been pronounced stone-dead and consigned to pre-history, is now rising, phoenix-like, from the ashes. The success of this model hinges on diversification and the typically low or negative correlation between bonds and equities during periods of economic growth, a scenario we might see in 2024. However, during periods of high inflation, as seen in the last two years, this correlation can become positive, diminishing the 60/40 model's effectiveness. There is of course nothing magical about the 60/40 ratio. Alterations can be made to suit specific needs, such as increasing bond allocation for immediate income or decreasing it for a longer-term investment horizon. Investors may also compensate for any shortfall in diversification by raising allocations to alternative diversifiers such as dynamic liquid alternatives and commodities. So, as a New Year’s resolution, let us always keep the long-term vision in mind, stick to our overall investment strategy and cut out the background noise. As the Oracle of Omaha once famously said: “Nobody buys a farm based on whether they think it's going to rain next year."

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

FINANCING & INVESTMENT OPTIONS Morgan Stanley and 2024 Suitable Opportunities. In an Imprefect World, Inflation is Still Very High Aimd Slowing Global Growth, a Pressing Question Arises That Needs a Wise Answer: WHERE TO INVEST YOUR MONEY IN 2024 ??? The Trilogy of Debt, Deflation and Geopolitics Crises Constitute The Overoall Vission for The Year. Let's We Hope 2024 Will be Much Better Than 2023 Good Luck :)

OPPORTUNITIES ARE OFTEN FOUND IN SURPRISING PLACES The current volatility markets are experiencing is likely proving jarring to many investors given the significant level of complacency that has prevailed thus far in 2024. We offer the following example to demonstrate that, whatever lies ahead for markets, alert investors will be able to identify new opportunities (though likely in surprising places. During the Second World War, aircraft would commonly return from battle with bullet holes. Areas receiving the most damage would be noted during repair and the information was passed on to senior ranks. Consequently, efforts were made to make these areas less vulnerable to improve aircraft survivability. The mathematician Abraham Wald contributed an important insight. Perhaps more attention should be paid to parts of the aircraft that received little damage, the inference being that planes hit in those areas did not return from battle to be counted. Wald’s observation led to greater armouring (within the limits of maintaining aircraft performance) of these lightly damaged areas which produced a significant improvement in the ability of aircraft to survive battle damage. Factors that will most significantly affect investment results are seldom found in consensus opinion but tend to develop with little recognition before they assert their influence on markets. A recent example was the slowness of markets to recognize the threat posed by COVID until a market crash was produced in March 2020. We began writing about the growing threat of COVID in our February 4th, 2020, issue and suggested that investors seek refuge in U.S. Treasuries in the March 4th, 2020, issue (available as a free sample on our website). Our more recent posts have highlighted the growing probability of a spike in market volatility due to the level of complacency extant and the extremely narrow market leadership. A recent post cited the example of late 2021 when the relative weakness of the FAANG stocks heralded the market decline of 2022. The substantial market weight of the Magnificent 7 is having a predictably negative impact on major indices as their relative strength wanes. 2024 promises to produce many attractive opportunities for alert investors, across markets and asset classes and from both the long and short side. Sound risk management practices and a willingness to seize on opportunities in various asset classes will be the keys to superior returns in the months and years ahead. Each month in the Global Investment Letter I update my investing activities, as well as comment on major global equity, fixed income, currency, and commodity markets. If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues of our paid service and to receive our free weekly investment comment please visit: https://lnkd.in/e3BaS3P

Interest Rates Steady: Time to Rethink Your Portfolio Strategy?   The Federal Reserve's recent decision to maintain interest rates at 5.25 to 5.5 percent marks a significant pause, impacting investors amidst 11 prior rate hikes. With the SPY500 near its all-time high and DIA and QQQ surpassing theirs, the market's mixed signals suggest potential undervalued sectors and call for a nuanced investment approach.    Bull Camp:  Investors eyeing a market upswing could look at the Russell 2000 ETF (IWM), which lags behind its peak. This ETF offers potential for significant mid-term growth, especially for those betting on a comprehensive market rally.    Kangaroo Camp:  Those expecting sideways trends might favor established indices like QQQ, SPY, and DIA. Known for their long-term resilience and steady performance, these ETFs offer a stable choice in unpredictable times.    Bear Camp:  With market sentiment skewing towards greed (71/100 fear-greed index), bearish investors can consider inverse ETFs like SH, PSQ, and DOG to potentially profit from short-term dips and provide a safety net.    In light of the Fed's rate hold, reviewing your strategy is vital. Whether you're considering SPY, QQQ, DIA, or IWM, factor in your risk tolerance, position sizing, and investment horizon. Thanks for reading  MuMing here. I believe "small wins ➡️ more wins ➡️ great life".  So I write this $1 Daily posts hoping to make a small difference for you.  🔔 for great life: https://lnkd.in/djjWd5pn  🔥 recent $1: https://lnkd.in/g6aMfccz