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A. Stotz All Weather Strategy – June 2022

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Review: Inflation and recession concerns were in focus. Performance: On par with a 60/40 portfolio in June. War in Ukraine, recovery demand, and supply-chain bottlenecks to drive commodities and gold. Risks: Inflation quickly gets under control, new lockdowns, central bank tightening crash markets.

The A. Stotz All Weather Strategy is Global, Long-term, and Diversified:

  • Global – Invests globally, not only Thailand
  • Long-term – Gains from long-term equity return, while trying to reduce a portion of losses during equity market downturns
  • Diversified – Diversified globally across four asset classes

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.

Review

The central bank dilemma

  • This is what central banks are dealing with
  • And financial markets have been reacting to

Since the start of 2021, high “inflation is transitory”

via GIPHY

  • 30 Nov 2021: “It is probably a good time to retire that word ”

Fed might be the root cause, not the solution

Yellen was wrong, too: “I was wrong then about the path that inflation would take.”

via GIPHY

  • Yellen, who’s smart, said this on 31 May 2022
  • Treasury Secretary Janet Yellen graduated summa cum laude from Brown University with a bachelor’s in economics
  • Master’s and Ph.D. in economics from Yale University in 1971

“I don’t think we’re (going to) have a recession.” (9 June 2022)

via GIPHY

  • “…Consumer spending is very strong. Investment spending is solid.”
  • “…there’s nothing to suggest that a … recession is in the works.”

This may apply to Yellen’s statement about “no recession,” too

Fed and the Treasury face a trust issue

Fed trying to avoid taking responsibility

  • “I think events of the last few months have raised the degree of difficulty, created great challenge.”
  • “And there’s a much bigger chance now that it will depend on factors that we don’t control.”

Biden won’t take responsibility either

  • Biden tries to put the responsibility on the gas stations for the high prices at the pump

An ironic remark from a meme account hits the spot

Performance of the World stock markets

  • US fell significantly in the past month
  • China continued to rebound
  • Key European markets fell a lot as well

Find the updated Performance of the World stock markets here.

World stocks have taken a hit in 2022

  • In 2021, World stocks were up 19.0%
  • YTD2022, they were down 20.0%
  • In June 2022, World stocks fell 8.4%

US equity fell by 8.3% in May

  • We had a target allocation to US equity, which was the third-worst performing equity
  • Recession worries weighed on the US stock market

Europe was the second-worst performer in June 2022

  • We had a target allocation to Developed Europe equity, which was down 8.4% in June
  • Worse confidence and economic data, high inflation, and ECB’s desire to hike rates led to a fall in European stocks

China alone couldn’t hold up Emerging markets

  • We had a target allocation to Emerging markets equity, which was down by 3.8% in June
  • Besides China, most Emerging markets fell heavily in the past month

Asia Pacific ex Japan fell by 5.8% in June 2022

  • We had a target allocation to Asia Pacific ex Japan equity
  • Besides China, Asian markets fell in June

Japan was the best-performing equity in June 2022

  • We had a target allocation to Japan equity, which was down by 2.3%

Thai money market stayed flat

  • Rather than Global Bonds, we had a target allocation to the Thai money market, which was flat as expected
  • The main purpose of our money market allocation is downside protection

Commodities performed the worst

  • We had a target allocation to Commodities
  • Commodities have been on a bull run since April 2020 but fell by 13.3% in June 2022

 

Only livestock wasn’t down

  • Fed’s rate hike in June aims to slow inflation but could also lead to a recession
  • Other central banks seem to do the same; bad for commodities
  • WTI oil closed June 2022 at $106/bbl

Gold kept up well in June 2022

  • We had a target allocation to Gold
  • Gold closed the month at US$1,807/oz or down by 1.9%

June 2022: AWS on par with the 60/40 portfolio

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

  • Bonds: Best performer by staying flat
  • Gold: Second-best performer
  • Commodities: Worst performer in May 2022

AWS has shown a strong performance

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

  • Except in the past 1 month, AWS has had a higher return and better risk-adjusted return in all periods
  • The same holds for the drawdown-adjusted return, but it has been the same in the past 1 and 3 months

AWS has experienced less volatility than a 60/40

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

  • Mostly 25-65% target weight for equity has reduced volatility
  • Since gold is generally uncorrelated to equity, it has reduced the overall AWS volatility

AWS has lost less on 9 out of the 10 worst days

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

  • A key feature of AWS is that it aims to lose less when equity markets fall
  • On the 10 worst days of Global equity since the inception of AWS, the strategy has lost less than 60/40 on 90% of days

AWS outperformed a 60/40 in 65% of months

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

  • In 26 out of 40 months, the All Weather Strategy has beaten a traditional 60/40 portfolio

Equity FVMR Snapshot

  • Fundamentals: US has the highest ROE by far
  • Valuation: EM has the lowest PE and Japan the lowest PB
  • Momentum: Japan was best in the past year
  • Risk: Lowest gearing is found in APAC ex JP

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