Asset Allocation
After a difficult first half of the year both Equities and Fixed Income rebounded strongly in July. The All-Country World Index was up 7.07% and the US Aggregate Bond index was up 2.54%. Price action in the markets suggests that investors see inflation peaking and the Federal Reserve teeing up a policy pivot - from hawkish to dovish.
During the month of July, our portfolios were equal weight equities, underweight fixed income and overweight cash.
Security Selection
In equities, exposure to the Emerging Markets Internet & E-Commerce theme (EMQQ) contributed to underperformance against the global equity benchmark. In Fixed Income, our active tilt towards short duration bonds and a satellite position in Emerging Market debt contributed to underperformance against the longer maturity fixed income benchmark.
Detractors from Performance
Contributors to Performance
EM Internet & E-commerce
Emerging Market Debt
Overweight Cash
US Equity Exposure
US Factor Rotation ETF
iBonds: Investment Grade Target-Term 2026
Underweight
Overweight
Technology Sector
Western European Equities
Government Debt
Consumer Staples Sector
US Value
Short Term Corporate Debt
Strategic Allocation Rationale
Asset Allocation:
Moving into August, we are equal weight equities and fixed income. We are underweight cash and commodities.
Equities:
We are geographically diversified and are selective with our US exposures, favoring quality and companies with pricing power. Recession is not our base case as corporate profitability remains strong, the consumer's balance sheet is healthy and inflation is peaking. In the near-term we are cautious and in the medium-term we are bullish.
Fixed Income:
High inflation continues to erode real returns and elevated interest rate volatility warrants caution. However, due to the large increase in yields this year, we see opportunities in the asset class and have increased our exposure to neutral. We favor High Yield and EM Debt, and are opportunistically adding to 2-to-6 year corporate bonds.
Alternatives:
We are short term bearish on commodities, but persistent imbalances across the commodity complex give us reason to believe that the asset class can still warrant a place in portfolios. We will be closely monitoring for signs of strength, and will add if an opportunity presents itself.
Portfolio Changes Since Last Month
Decreased
Increased
Cash Allocation
Fixed Income Allocation
Fixed Income Duration
Chinese Equity Exposure
Disclosures: This information was produced by and the opinions expressed are those of Accuvest as of the date of writing and are subject to change. Any research is based on Accuvest proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however Accuvest does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. Any sectors or allocations referenced may or may not be represented in portfolios of clients of Accuvest, and do not represent all of the securities purchased, sold or recommended for client accounts.
The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results. Actual results may vary based on an investor’s investment objectives and portfolio holdings. Investors may need to seek guidance from their legal and/or tax advisor before investing. The information provided may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that shown here. The information presented, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.