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A. Stotz All Weather Strategies – June 2023

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The All Weather Strategy is available in Thailand through FINNOMENA. If you’re interested in our allocation strategy, you can also join the Become a Better Investor Community. Please note that this post is not investment advice and should not be seen as recommendations. Also, remember that backtested or past performance is not a reliable indicator of future performance.

What happened in world markets in June 2023

Performance of the World stock markets

  • Strong rebound in the US
  • Japan continued strongly
  • Hong Kong rebounded more than China A
  • Europe saw a good rebound as well

Find the updated Performance of the World stock markets here.

World stocks rebounded strongly in June 2023, up by 5.9%

  • In 2022, World stocks were down 18.0%
  • YTD23, they’re up 14.3%

Global bonds were down slightly in June

  • The main purpose of our money market allocation is downside protection

Commodities rebounded 4.4% in June

WTI oil closed June 2023 at US$70/bbl

Commodity prices rebounded in June

  • Agriculture rebounded on drought in the US, which also increases the input costs of Livestock
  • Energy saw a rebound in June 2023

Gold fell by 3.0% in June 2023

  • Gold closed the month at US$1,919/oz
  • As the market expects further rate hikes, non-yielding gold fell

Only JPY and CNY weakened against gold in June 2023

  • All currencies have weakened relative to gold YTD
  • Typically, a stronger US$ means a lower gold price in US$ and vice versa

Eurozone has entered recession (Lagarde was wrong, obviously)

US inflation is coming down; Fed paused rate hikes in June

Cardboard box recession

The market doesn’t appear efficient

  • Risk and return go hand in hand in financial theory
  • But right now, the same return, no matter if you pick low, medium, or high risk; remarkable!

Tech is doing exceptionally well

SEC is clamping down heavily on crypto

  • With an interesting quote, the US SEC announced they’re going after Binance
  • The US SEC didn’t stop at Binance but has also sued Coinbase

After SEC’s moves, BlackRock and other institutions filed to launch Bitcoin ETFs

BlackRock distances itself from ESG

  • “I’m not going to use the word ESG because it’s been misused by the far left and the far right,” said Fink
  • BlackRock likely will continue to push its “woke capitalism” agenda though

What appears to a military coup was initiated and struck down – a weekend in Russia


Key takeaways

  • Eurozone has entered recession
  • US inflation is coming down; Fed paused rate hikes in June
  • Cardboard boxes signal recession in the US
  • Tech is doing exceptionally well
  • SEC moves on Bitcoin; institutions file to launch Bitcoin ETFs
  • BlackRock distances itself from ESG
  • Failed military coup in Russia

Performance review: All Weather Inflation Guard

All Weather Inflation Guard was up 1.2%

Since inception, the strategy was 2.6% below a 40/60 portfolio as of 30 June 2023

  • The strategy has experienced less volatility though

The strategy was 0.5% below the 40/60 portfolio

  • Our World IT tilt was slightly below the World equity fund
  • The underperformance was due to low equity exposure and high gold allocation as World equity rebounded

Performance review: All Weather Strategy

All Weather Strategy was up 2.9%

Since inception, the strategy was 5.6% above a 60/40 portfolio as of 30 June 2023

The strategy was 0.4% above the 60/40 portfolio

  • Our 25% allocations to Japan and Developed Europe did well
  • Our 25% gold allocation dragged on the June performance

Performance review: All Weather Alpha Focus

All Weather Alpha Focus was up 2.3%

Since inception, the strategy was 3.6% below the 60/40 portfolio as of 30 June 2023

Since inception, the strategy was 1.2% above World equity as of 30 June 2023

The strategy was 0.1% below the 60/40 portfolio

  • The strategy was 1.8% below World Equity
  • Our defensive tilts to World Infrastructure World Healthcare, and Gold underperformed World Equity

Global outlook that guides our asset allocation

The 3m gov’t bond yield has risen to 5.0% from 2.4% a year ago

  • Central banks battle inflation while trying to avoid a severe recession or banking crisis
  • Expect higher rates, though at a slower pace, as central banks haven’t yet got inflation down to target levels

After the pause in June, the market expects another hike in July 2023

  • The market is pricing in an 87% probability for a 0.25% hike at the next FOMC meeting

Yield-curve inversion has dived deeper, watch for the turn that may have begun

  • All recessions in the US since 1968 were preceded by an inverted yield curve
  • Average time from inversion, until the recession started, was about 1 year (so 4Q23)

A low unemployment means upward pressure on wages, which is inflationary

  • Fed needs to fight inflation, hence, increasing unemployment
  • Historically, when unemployment has been this low, a recession has followed

For the past year, we’ve said that we think the course will eventually be reversed

  • We still think central bankers and politicians will change course and return to accommodative policies as soon as something “breaks”
  • And we do think central bankers are going to break things

Bonds are typically a safe place to be, even though 2022 was exceptionally bad

  • In recessions, safer assets like government bonds typically have performed well
  • Though with high inflation, low yields could still lead to negative real returns
  • We generally don’t allocate to bonds to speculate on the upside but rather use it to protect capital over time

Energy prices have come down

Food prices have softened

  • If the trend continues, it would help to lower the pace of inflation

Commodities have lost momentum as the global economic outlook has worsened

  • We currently don’t see a clear catalyst for energy prices to go significantly higher
  • The main upside in commodities would come from a supply shock, adverse weather conditions, or significantly higher demand due to an improved growth outlook

Central banks have been loading up on gold, maybe switching from US$?

The recession risk remains

  • We keep a relatively high gold allocation in our strategies, which also serves as insurance in times of uncertainty
  • In general, gold protects value in times of uncertainty and market downturns

Risk: Inflation reaccelerates

  • Central banks’ aggressive rate hikes and QT crash the stock markets
  • If inflation reaccelerates, we could miss out on rising commodities prices
  • Our high gold allocation could get hit by higher rates or improved market sentiment

DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

Posted in All Weather Strategy