Author: Nicholas

This author has written 38 articles
Read more about the article Insights – Optimal Time to Rebalance a Portfolio and Rebalancing Timing Luck

Insights – Optimal Time to Rebalance a Portfolio and Rebalancing Timing Luck

The theory behind investing in a multi-asset portfolio is pretty straight forward when simplifying it. You select a diverse set of uncorrelated assets, assign target weights and then you're done. Not that tricky.

It is mostly the managing part of the investment process that is more challenging. First, you have to work on your conviction to stick to the strategy and remembering why you chose the strategy in the first place. Secondly, you have to deal with rebalancing the portfolio, as uncorrelated assets are guaranteed to develop in different directions with some assets zigging when others are zagging.

The topic of rebalancing is one which I find is underserved in the literature and one that I get most questions about. Usually, it is the theory behind a portfolio that is the most exciting to write about and which is the key topic that sells and attracts more clients. The science of rebalancing, however, is just something that is covered briefly, at most.

While I have been writing about portfolio rebalancing in the past, I have recently found renewed inspiration for this topic. That inspiration turned into this post, where we are looking more closely at rebalancing luck, and if there is an optimal time in a month to rebalance a portfolio.

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Read more about the article eToro Post – Prediction versus Preparation and Why Diversification Matters

eToro Post – Prediction versus Preparation and Why Diversification Matters

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  • Reading time:5 mins read

The legendary credit investor Howard Marks (founder of Oaktree Capital Management) wrote an investor memo titled "You Can't Predict. You Can Prepare." in 2001.

Although more than 20 years have passed since these words were written, the message is almost eternal for investors.

The probability of consistently succeeding as an investor in this endeavor and regularly making money over decades is vanishingly small. This is why, as a capital manager, I constantly come back to the title of Howard Marks' memo, even though the memo was written from the perspective of a credit investors. Still, the words ring at least as true for a diversified macro-oriented portfolio, such as the All Seasons Portfolio.

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Read more about the article Insights – The Case for Gold in a Diversified Portfolio

Insights – The Case for Gold in a Diversified Portfolio

Gold is a popular investment due to its ability to hedge against inflation, low correlation with the stock market, and its relationship with real interest rates. Using modern portfolio theory and the efficient frontier, investors can find the optimal allocation to gold in their portfolios that balances expected returns and risk. However, the optimal level of gold allocation will depend on an investor's specific investment objectives, risk tolerance, and financial situation. Therefore, adding gold to a well-diversified portfolio can improve its risk-return characteristics, particularly during periods of market stress.

In this article, we explore gold as an investment and inflation hedge, and briefly touch on how it fared in the inflationary year of 2022. We further look at the current case for gold in terms of real interest rates, the M2 money supply, and discuss how the gold price performs relative to also other currencies than just the US dollar.

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Read more about the article eToro Post – Outlook for Commodities from Q3 2022

eToro Post – Outlook for Commodities from Q3 2022

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  • Reading time:6 mins read

A recent interview with Goldman Sachs global head of Commodities Research, Jeff Curie, on Meb Faber’s podcast (episode 445: https://mebfaber.com/2022/09/26/e445-jeff-currie/, available on most podcast apps) caught my interest with a summary of the commodities outlook and where we are in a commodity supercycle with current underinvestment in the supply side

The main take out from this interview is that this last year’s increase in commodity prices is not caused by Russia, but the underlying structural issues were caused by policy and underinvestment in the sector in the last decade, which Russia has taken advantage of.

In this brief article, we summarize the key message of the interview and what lies ahead for the energy sector and broad commodities for the next years. We are most likely set up for a new commodity supercycle, so prepare your portfolio accordingly.

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Read more about the article eToro Post – Adding US Dollar Index (DXY) Exposure to an All Seasons Portfolio

eToro Post – Adding US Dollar Index (DXY) Exposure to an All Seasons Portfolio

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  • Reading time:10 mins read

Interest rate risk and sentiment risk (periods of risk off behaviour) are two risks that are typically difficult to hedge. These risks have characterized the first nine months of 2022, so if we could find some asset that could help offset losses in stocks and bonds during these periods, that would be great.

Therefore, with this post, we look at an alternative investment that could provide at least some protection against rising rates, and one of them could be to go long the United States Dollar. In this article, we will be looking at an index giving broad exposure to the dollar, what benefits it adds to a diversified portfolio, and how a retail investor can add this exposure to a portfolio.

We review the UUP ETF (Invesco DB US Dollar Index Bullish Fund) and its underlying exposure to the US Dollar Index ("DXY"), what it is, and why it might be a good diversifier.

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Read more about the article Insights – Interest Rate Risk and Asset Correlations with Future Cash Rate Expectations

Insights – Interest Rate Risk and Asset Correlations with Future Cash Rate Expectations

"Is the All Seasons Portfolio strategy not working anymore?"

With an annual drawdown for such portfolios almost as bad as for the stock market YTD (S&P 500 currently being down 16% since 1 January, having briefly been below -20%), I am not surprised that I have been hearing this question more and more recently. Is this a bug or a feature?

The first seven months of 2022 can be illustrated by two major themes in terms of financial markets: a) significant underperformance of major asset classes such as stocks and bonds, and b) rising rates.

The latter constitutes one of two undiversifiable risks for investors, as when the cah rate rises, that impacts asset prices as returns of risky assets always compete with the return of cash.

In this article, we explore interest rate risk and how most major asset classes have correlated with the future cash rate expectations over the first seven months of 2022. We try to answer the question on if the All Seasons Portfolio strategy is broken, or if the playing field has been reset and that we can expect better performance ahead.

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