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Category Archives: Global Tactical Asset Alloction

Asset Allocation Insights – Bad and Getting Worse for Equity Investors

Investors Shun Equities

  • A slow week with a bit of cheer for equity investors
  • US small caps recover the most – up 1% for the week but still down 21% over the last three months
  • REITS gave back some gains last week (down 1.7%) and are now also in negative territory for 2018
  • Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
  • Aggressive, domestically focused multi-asset class strategies out-performed less risky options
  • YTD lower risk asset allocation strategies have outperformed especially if allocations involved international equities
  • Within equities, Growth slightly under-performed Value but Growth remains solidly ahead for the year
  • Cash remains the best performing of the major asset classes for the year

Currencies:

  • The USD is losing some strength as budget discussions in Washington remain unresolved and the Fed has indicated being close to done with rate hikes
  • A depreciating USD will boost international asset returns
  • The British Pound continued depreciating due to major uncertainty regarding BREXIT early in 2019
  • The Yen is now in a Break Out phase as investors remain very risk-averse and the Yen is usually considered the “safe” trade
  • Resource-oriented currencies experienced the biggest losses last week relative to the USD as commodity prices remain in a Down Trend
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer
  • Natural gas prices were down over 8% due to warmer predicted weather and lower levels of fuel switching than anticipated
  • Gold and Silver had good weeks as investors have become more risk averse and the Fed has indicated only 2 more rate hikes for 2019
  • However, we still view US Treasuries as the best hedging option for equity risk

This Coming Week:

  • The year of risk-off continues with little to offer us hope that risky assets will recover soon – there may be a spike in January but risk is being shunned at the moment
  • While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
  • The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
  • The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
  • We are also watching out for any jump in inflationary expectations (which have been trending down). Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering. We still believe that an allocation is warranted. Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
  • Leverage on the balance sheet of companies should be cross-checked for sustainability
  • We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

Asset Allocation Insights – Risk Is Off The Table

Investors Want No Part Of Risk

  • Another tough week for risky assets with no end in sight
  • US small caps take yet another down leg and are now down 7% for the year
  • REITS gave back some gains last week but remain our best key asset class for 2018 – up 4.1%
  • Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
  • Aggressive, domestically focused multi-asset class strategies under-performed less risky options
  • YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
  • Within equities, Growth outperformed Value as Energy and Financials experienced large loses

Currencies:

  • The USD appreciated yet again last week and remains in a significant Up Trend
  • The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
  • The Yen continues in a Down Trend especially in light of lower economic growth in Japan
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer but surprisingly soybeans were down despite increased Chinese purchases
  • Natural gas prices were down over 16% due to warmer predicted weather and lower levels of fuel switching than anticipated
  • Gold and Silver were slightly down last week but their technical picture has improved recently as risky assets continue cratering
    • We still view US Treasuries as best hedging option for stocks

This Coming Week:

  • The year of risk-off continues with little to offer us hope that risky assets will recover soon
  • While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
  • The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
  • The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
  • We are also watching out for any jump in inflationary expectations (which have been trending down)
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering but will end up in the red this year
    • We still believe that an allocation is warranted
    • Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
  • Leverage on the balance sheet of companies should be cross-checked for sustainability
  • We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – Federal Reserve Words Stop the Bleeding for Now

Federal Reserve Indicates Rates Close to Target

  • Risky assets roar back after last week’s tough week as the Federal Reserve indicates that short-term rates are close to “normal”
  • US large cap, in particular, staged a nice earnings-related recovery
  • REITS continue quietly performing well – up 5.8% for the year (best among our key asset classes)
  • EM stocks also continue their recovery an are up 2.5% over the last month
  • Aggressive, domestically focused multi-asset class strategies outperformed less risky and more internationally focused allocations
  • YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
  • Commodities remained volatile and subject to the direction of oil prices – the trend is still negative

Currencies:

  • The USD appreciated slightly last week and remains in a significant Up Trend
  • The South African Rand continues recovering from oversold conditions
  • The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
  • The Mexican Peso recovered a bit last week as a new administration is sworn in this week
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer with soybeans again up last week
  • Lumber prices continue being extremely volatile and remain in a Down Trend
  • Gold and Silver were slightly down last week and barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame and the end may be near as the Fed indicates rates close to “normal”
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations (which have been trending down)
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering but will end up in the red this year
    • We still believe that an allocation is warranted
  • Growth outperformed Value last week but we are seeing signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is losing strength despite a bif up week
  • The G20 meeting concludes – the US and China are still at odds over tariffs but maybe rational minds will prevail?

__________________________________________________________________________________

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – Stocks and Bonds Make Better Friends Under Duress

Stocks & Bonds – Friends Under Duress

  • Last week again showed why you need both stocks and bonds in your portfolio – when one zigs the other one zags
  • The search for assets that effectively diversify equity and interest rate risk is key especially given over-valued stocka nd bond markets
  • Yet another tough week for risky assets with 2 exceptions: Emerging Mkt equities and REITS
  • The outperformance of EM equities was driven by a bounce back in the Chinese market (up 2.8% last week)
  • Conservative (bond heavy) multi-asset class strategies outperformed riskier (heavier equity) allocations
  • YTD lower risk asset allocation strategies have also outperformed especially if the allocations involved international equities
  • Commodities remained volatile and subject to the direction of oil prices – the trend is increasingly negative
  • Within equities, US Midcaps outperformed last week with Value stocks trouncing Growth stocks by 1.1% over the last 5 days
  • A 60/40 mix of purely US assets under-performed last week a global version but remains vastly ahead YTD

Currencies:

  • The USD appreciated slightly last week and remains in a significant Up Trend
  • The South African Rand continues recovering from oversold conditions
  • The British Pound got pounded due to major uncertainty regarding whether BREXIT will pass Parliament
  • Theresa May can’t seem to win even when she resolves major uncertainties (Irish border this week, deal with EU)
  • The Mexican Peso continues its depreciation versus the USD and is firmly in a Down Trend Stage policy
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices had a bad week due to the continued downward trend in oil prices
  • Oil prices dropped 7% last week and are down over 18% over the last 60 days
  • On the flipside, grain prices have been recovering since the summer with soybeans again up last week
  • Lumber prices continue being extremely volatile and remain in a Down Trend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted
  • Value dramatically outperformed Growth last week and we are seeing signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is quickly losing strength
  • Q3 reporting is semi-heavy in the US – looking for commentary on tariffs, slowing growth, and inflationary pressures

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – A Reprieve for Equity Investors but Tariffs Loom Large

A Reprieve for Equity Investors but Tariffs Loom Large

  • Equities recovered last week and fixed income only suffered mild losses last week
  • The best performing asset class last week was Emerging Market Equities
  • Multi-asset class investors enjoyed above-average returns due to the spike in equity values
  • Commodities remained volatile and subject to the direction of oil prices
  • Within equities, US large cap ended up over 2% with Value strategies outperforming Growth by 2%
  • A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD

Currencies:

  • The USD slightly appreciated last week after the significant gain it had the week before
  • The South African Rand recovered over 1% as interest rates provide some support for the beleaguered currency
  • The British Pound gained almost 2% as BREXIT negotiations regained momentum and Sterling monetary policy becomes more normalized
  • The Mexican Peso tumbled as a left-leaning new President encounters economic difficulties and political fallout from US immigration policy

Commodities:

  • Commodity indices had a bad week due to the continued downtrend in oil prices
  • Oil prices dropped nearly 7% last week and are down over 15% over the last 20 days
  • On the flipside, grain prices have been recovering since the summer with soybeans, corn and wheat prices all up last week
  • Lumber prices continue being extremely volatile – lumber was up last week almost 10% but remains in a severe downtrend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – A Dicey Week Gets Investors to Pay Attention to Risk

Investors Pay Attention To Risk Again

  • Risky assets suffered large losses last week with the exception of REITS up over 3%
  • Fixed income also experienced losses as interest rates globally moved up yet again
  • In general, while the losses paled in comparison to the previous week, multi-asset investors continued losing capital
  • Within equities, US large cap ended up flat with Value strategies outperforming Growth by 1.3%
  • A 60/40 mix of purely US assets out-performed a global version and remains vastly ahead YTD
  • In general, higher risk multi-asset strategies under-performed last week but remain ahead YTD

Currencies:

  • The USD once again regained lost strength last week
  • The Brazilian Real further recovered as a pro-business President is on deck
  • EM currencies were mixed with the Peso and Yuan losing additional ground
  • The British Pound lost about 1.5% last week as Brexit negotiations continue without a clear outcome
  • The Yuan avoided being labeled a currency manipulator by the US Treasury but the trend is for further depreciation

Commodities:

  • Commodity indices gave back some of the gains from the previous week as oil prices retreated
  • Grain prices also retreated further but prices have stabilized from the bottom hit in the summer
  • Sugar and Coffee showed the most gains aided by an appreciating Brazilian Real
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

This Coming Week:

  • US risky assets keep outperforming YTD but last week was a down week across the board except for REITS
  • The worst performing asset categories are international equities with EM down almost 15% YTD
  • The critical variable to watch for this week is the US 10 Year Note – another spike up and risky assets will be under great stress
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted
  • Value dramatically outperformed Growth last week and we are seeing faint signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is quickly losing strength
  • Earning season in the US is back with Amazon, Microsoft, and Google all reporting
  • The biggest issue for investors is lack of a reasonable hedge to equity risk

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – Commodities Roar Back

Commodities Roar Back

  • Risky assets suffered large losses last week with EM stocks taking the biggest beating
  • Fixed income also experienced losses as interest rates globally spiked up
  • Only Commodities as an asset class experienced positive returns
  • Within equities, US large cap lost the least as Value strategies actually showed slight gains
  • A 60/40 mix of purely US assets out-performed a global version and remains vastly ahead YTD
  • In general, higher risk multi-asset strategies under-performed last week but remain ahead YTD

Currencies:

  • The USD regained lost strength last week
  • The Brazilian Real spiked up as pro-business President is expected to be elected
  • EM currencies continue getting pounded with the Rand taking the biggest beating as SA enters a recession
  • As central banks normalize their policies expect enhanced volatility as market participants balance interest rate differentials with economic growth dynamics
  • The Yuan has stabilized after a period of depreciation – authorities have refrained so far from using a weaker currency to fight tariffs

Commodities:

  • Best week this year for commodity prices – potentially a wakeup call as investor update their inflationary expectations
  • Sugar and coffee prices were up the most boosted by the appreciation of the Brazilian Real
  • Grain prices recovered from previous week lows but until tariffs with China are not agreed to we should expect to see huge volatility
  • Oil keeps marching higher as economic growth remains robust and sanctions against Iran take a bite out of supplies
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

This Coming Week:

  • Risky assets keep outperforming YTD but last week was a down week across the board except for commodities
  • The critical variable to watch for this week is the US 10 Year Note – another spike up and risky assets will be under great stress
  • Our view is that markets will calm down and that risky assets will recover this week
  • We are also watching out for any strong jump in inflationary expectations
    • An important economic number to watch this week is US CPI on Thursday
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
  • Value dramatically outperformed Growth last week and we are seeing faint signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is quickly losing strength
  • What will make investors price risk more in line with history?
    • A growth scare in the US, maybe? A real inflation scare?
  • The biggest issue for investors is lack of a reasonable hedge to equity risk

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – International Assets Stage a Comeback

Weekly Asset Allocation Highlights

  • Risky assets continued recovering last week with International assets out-performing domestic assets
  • Developed market equities did best this week with EAFE out-performing the US
  • EM equity and bonds recovered from pretty poor momentum – currency helped last week for a change
  • A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD
  • In general, higher risk multi-asset strategies out-performed last week and remain ahead YTD

Currencies:

  • The USD gave up ground last week – the second week in a row
  • Foreign central banks are reading their way toward policy normalization
  • Within EM currencies the pattern was bullish with wide-ranging appreciation versus the USD
    • The Rand and Real recovered nicely
  • Among the major currencies, resource-oriented currencies such as the AUD and CAD appreciated the most
  • The Yuan has stabilized after a period of depreciation – authorities have refrained so far from using a weaker currency to fight tariffs

Commodities:

  • Lumber suffered a disastrous week as conditions of over-valuation are being worked through
  • Grains are getting whipsawed by trade war on/off issues but in general, benefited from the belief that negotiations will take place between China and the US
  • Coffee recovered along with the Brazilian Real
  • Oil keeps marching higher as economic growth remains robust and sanctions against Iran take a bite out of supplies
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend

This Coming Week:

  • Risky assets keep outperforming despite political headwinds
  • The strong USD keeps crushing investors in international assets but should be losing some momentum.
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency
  • Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
  • Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
  • What will make investors price risk more in line with history?
    • A growth scare in the US, maybe? A real inflation scare? Waiting for Impeachment?
  • Biggest issue for investors is lack of a reasonable hedge to equity risk

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Asset Allocation Insights – The Seesaw Continues But Risky Assets Continue Winning

Weekly Asset Allocation Highlights

  • Risky assets recovered last week – it seems like every other week we flip around – maybe this week is going to be good for bonds?
  • Developed market equities did best this week with EAFE out-performing the US
  • EM equity and bonds recovered from pretty poor momentum – currency helped last week for a change
  • A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD
  • In general, higher risk multi-asset strategies out-performed last week and remain ahead YTD

Currencies:

  • The USD gave up a bit of ground last week
  • Foreign central banks are reading their way toward policy normalization
  • Within EM currencies the pattern was mixed – the Rand and Rubble recovered nicely but the Brazilian Real continued its downward slide
  • Among the major currencies, the euro outperformed
  • The Yuan has stabilized after a period of depreciation but remains volatile within the “official” range

Commodities:

  • Grains are getting whipsawed by trade war on/off issues – Corn and soybeans continue being most at risk
  • Coffee also keeps getting pounded by the depreciating Brazilian Real
  • Oil is also getting whipsawed by political tensions – up a little last week as curbs on Iranian oil take effect
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend

This Coming Week:

  • Are political issues in Washington of any concern to markets? Is the Manafort plea deal the beginning of the end?
  • The strong USD keeps crushing investors in international assets but should be losing some momentum.
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency -China has a lot to do with this given its weight in the MSCI index (30%)
  • Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
  • Global Tech has performed well this year but short-term it is in a break Down phase. More bad news to come or buy the dip? We are holding steady, not buying more.
  • Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
  • What will make investors price risk more in line with history? A growth scare in the US, maybe? A real inflation scare? Waiting for Impeachment?

To read our full weekly report please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

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