"Where should I invest?"

Yesterday we discussed 6 “paragon” portfolios, including extremes across the risk spectrum like being 100% in cash or 100% in stocks.

Today, we list 7 building blocks for your portfolio, with strong tailwinds at their back in this market phase. This is in preparation for part 3 tomorrow, where we’ll assemble them into a model portfolio for Q4’23 and onwards.

Cash offers mouth-watering interest. With a remarkable 5.4% yield, cash is all of a sudden fashionable. We keep cash in our allocations as dry powder, to buy something later at lower valuations. 

This is the right moment for Treasuries. Mid-cycle is a good moment to load on Treasuries, especially when the Central Bank stops hiking.

Play the AI revolution with the ‘Magnificent Seven’ stocks. 7 stocks have led the market higher in the last 12 months: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla. One might be wary of buying stocks at the nadir, but momentum can last deep into the mid-cycle - especially at the onset of new technology.

The market is full of Value stocks. Do you reckon the market is expensive? Think again! Rock-bottom bargains abound, from ALB to EMN to VZ the market is full of forlorn stocks with value levels last seen in 2008.

Oil is rich in carry and momentum. How would you like 8% carry and strong tailwinds as trade recovers at the end of the inflationary bout?

Crypto is the bull market nobody talks about. Once upon a time, there was a bull market in crypto and people were enthused by NFTs. Then AI came, and we moved on. But Crypto has not disappeared, and smart contracts will once again come to the fore in the future. Load on those ETHs.

Real estate will benefit from the return to the office. Real estate comes from a brutal battering: higher rates and work-from-home policies were a perfect storm to crash prices lower. But we’re past all that, and REITs of all colors might be getting ready to shine again.

Tomorrow we’ll take these 7 lego blocks and try to assemble them in a coherent portfolio ready for the next phase of the cycle!

"Where should I invest?"

Asset allocation pieces have a grand and long-standing tradition in big banks.

They pop up at the beginning of each quarter and remind us about the most important investment decision we must make: portfolio allocation.

So here’s 6 profiles of portfolio allocation - each one with its own merits:

Cash is king: 100% in cash. T-Bills give you 5.4% yield. With inflation falling fast, that’s not a bad place to be.

Treasury Bug: 100% in 10Y Treasuries. The end of the hiking cycle is in sight AND it’s entirely possible we see rate cuts next year. Long bonds do well in this scenario, and give you 4% carry in the meantime. Treasury bugs will hold on to their USTs until they can buy the market at a much cheaper P/E.

Risk Parity: [60% in Treasuries] + [40% in your favourite stocks]. Risk Parity’s century-old track record is stellar, and long-term investors do well to trust it with their savings. In terms of what stocks to add, we’ll discuss it tomorrow but the whole market is your menu, from strong momentum in tech to deep value in other sectors.

To the Moon: [30% cash] + [70% of your favourite stocks]. Who said the bull market is over? Cassandras have been complaining about expensive stocks for months and yet here we are at SPX 4,500. Just keep some cash to buy the dips.

Going Nova: [80% in your favourite stocks] + [20% in crypto]. The way to long-term returns is long-term risk-taking. “No pain, no gain”, that’s the philosophy. You got to keep the pedal to the metal all.the.time. if you want oversized returns. 

The ‘Warren Buffet’: 200% in your low beta stocks. Buffet is not a value investor, he’s a low beta investor. He buys low-vol stocks on leverage, trusting the best US companies not to go bust. Worked well for him for a long time.

Platinum.

 Today is a second entry buy day. 

Platinum.

 

• The silverish-white metal is often used in “catalytic converters” that reduce harmful emissions from fossil fuel vehicles.

• The global platinum market is expected to rack up its largest deficit since the 1970s as the world’s largest producer, South Africa, battles with power outages.

• South Africa accounts for 70% of global platinum output, and its annual production amounted to about 140 metric tons amid shortages in 2022.

• According to The World Platinum Investment Council (WPIC), global platinum demand should surge 28% this year to 8.2 million ounces as more automakers replace expensive paladium with platinum in car catalytic converters.

• Metals Focus added, "With power outages in South Africa limiting supply, the global deficit could increase to 953,000 ounces from 53,000 ounces in 2024.”