Asset Allocation

Equities rose in October, with the All-Country World Index up 6.3%. Fixed Income fell as interest rates continued to grind higher. The US Aggregate Bond index was down -1.3%.

2022 has been a historically bad year for fixed income. As of October 31st, the year to date return for the US Aggregate Bond index was -15.5%. The US liquid investment grade bond index was down -21.8% and long-term treasuries were down a full -34.1%. The Fed has embarked on one of the fastest and most aggressive rate hiking cycles in history. On October 31st 2022 the 10-year treasury yield was hovering above 4%, a far cry from the rock bottom levels at the height of the pandemic in 2020, when 10 year yields briefly dipped below 0.5%.

Equities have also had a difficult year, but bounced back in October as better-than-feared earnings results fueled a rally in U.S. stocks. Of the 52% of S&P 500 companies reporting through October, 71% beat analyst estimates, according to FactSet.

During the month of October, our portfolios were, on average, marginally underweight fixed income and equities due to a small allocation to commodities.

Security Selection

In equities, exposure to value stocks via the Russell 1000 Value ETF (IWD) contributed to outperformance against the global equity benchmark. Value stocks have continued to show relative strength versus growth stocks, and we will remain overweight until we see confirmed signs of a change in leadership. In Fixed Income, our active tilt towards short duration bonds in a rising rate environment continues to contribute to outperformance against the longer maturity fixed income benchmark.

Detractors from Performance

Contributors to Performance

• Multi-Factor EM Equity ETF

• EM Internet & E-Commerce Theme

• Underweight to Equities

• Interest Rate Volatility and Inflation Hedge Fixed Income ETF

• US Large Cap Value

• US Factor Rotation ETF

Underweight

Overweight

• Long Duration Fixed Income

• Large Cap Equities

• Government Debt

• Consumer Staples Sector

• US Value

• Treasury Inflation Protected Securities (TIPS)

Strategic Allocation Rationale

Asset Allocation:

As we move into November, we are equal weight equities and cash. We are underweight fixed income and commodities.

Equities:

We are near-term neutral on equities but medium-term bullish. We are overweight US equities but are selective and defensive with our exposures. We continue to favor quality and companies with pricing power.

Fixed Income:

We are moderately underweight fixed income. While we anticipate an imminent peak in inflation, it remains high, therefore eroding real returns. Nevertheless, yields have risen to very interesting levels, and we prefer to take advantage using a hold-to-maturity approach. We maintain a short duration profile.

Alternatives:

We are underweight commodities but will be monitoring the technicals for signs of strength. We are bullish on the asset class in the medium term.

Portfolio Changes Since Last Month

Decreased

Increased

• Commodities

• Ultra Short Income ETF

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.