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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

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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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