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Asset Allocation Insights – Investors Forget About Risk

Asset Allocation Insights - March 3 2019


Risk Loving is in but for how long?

►The comeback for holders of risky assets was interrupted this week as growth concerns returned

►EM, Commodities and Reits had poor weeks as commodity prices suffered again and interest rates increased in the US

►On a YTD basis US small caps lead the pack by a wide margin – up 18.1%

►In the context of balanced 60/40 strategies US strategies out-performed strategies more globally focused

►Aggressive focused multi-asset class strategies out-performed less risky options

►Within equities, Growth has slightly out-performed Value in 2019 and over the last year Growth also remains solidly ahead

►Thus far in 2019 more aggressive multi-asset strategies have outperformed

Currencies:

►Flat week fort the USD

►For 2019 we still expect the USD to depreciate slightly

►A depreciating USD will boost international asset returns – we expect this effect to persist in 2019

►A big question mark for this coming week is what happens to Brexit (yet again) – sterling is being massively tossed around depending on political prospects

►The Yen is now in a Break Down phase as investors have regained their desire for risk

►In general, FX volatility has increased substantially in the last couple of months

Commodities:

►Commodity indices have moved into an Improving phase as oil markets have found some stability

►Gas was up big last as it became less oversold

►Copper moved down slightly after a big spike up the previous week – still very growth oriented

►Gold and Silver were slightly down last week and are showing divergent patterns

►While inflationary expectations remain low, commodity prices are an excellent hedge should things change

This Coming Week:

►While risky assets have recovered we still think that risk is being shunned at the moment – investors seem uncomfortable making bod bets

►While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations and a depreciating USD

►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

►Our biggest concerns revolve around a slowing global economy – The IMF recently lowered 2019 growth numbers to 3.5%

►We still see a risk on/off market this year making it difficult for short-term investors – probably best to extend horizons

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To read our full weekly report please click here

ic J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

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