eToro Post – Outlook for Commodities from Q3 2022

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

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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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eToro Post – How Strategic Rebalancing Helped Avoid a -35% Loss in Long Treasury Bonds

Since I joined eToro in April last year, I have been sharing insights and observations about investing with risk balanced strategies such as the All Seasons Portfolio (“ASP”) strategy I run here. As eToro is a social trading platform, I from time to time share content in my eToro feed, which I then share on the blog in posts like this.

As part of my All Seasons Portfolio, the asset classes have a set aimed allocation, which is based on their historical volatility and correlations and biases to different economic regimes. For rebalancing the portfolio, I apply rebalancing spans that allow assets to deviate from the aimed allocation with +/- 20%, unless it is in a trend.

Such rebalancing trigger occurred in March 2022 for Long-Term Treasury Bonds, as its weight had fallen by more than 20%, but as it was in a clear negative trend, rebalancing was postponed until May 2022.

By waiting with the rebalancing, I managed to avoid a loss of more than 35% on the position I would have taken in March (or -2.5% on a portfolio level).

In this post, we describe in a bit more detail the benefits of applying such strategic rebalancing rules.

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eToro Post – Delayed Planting Season in the U.S. Threatens Crop Yield

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The big news surrounding CBOT traders the past few weeks is the very wet and unusually cool weather this spring in the northern U.S. Plains, affecting farmers in North Dakota, northern Minnesota and parts of South Dakota.

For example, the planting progress for North Dakota corn reached 20% last week, compared to a 66% annual average at the same point in time in previous years, while spring wheat recorded 27% completion versus a 80% average.

The numbers are, in other words, far off from a typical year. The similar grim story is told for soybeans, albeit these are less delayed than wheat and corn on a nation-wide level, but with North Dakota (the fourth largest soy area in the U.S.) being again significantly behind.

The wet conditions have made it difficult to get the crops into the ground, with the U.S. corn planting running at the second-slowest pace in more than a quarter century, and spring wheat planting being THE slowest on record.

In this article, originally posted in my eToro feed, we take a quick look at what consequences can be expected from this late planting of vital crops.

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eToro Post – Where does the All Seasons Portfolio fit in your wealth structure?

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A common question that I get around the All Seasons Portfolio strategy from investors, especially asked by the not-yet-old ones, is why one should invest in a low risk portfolio with decreased volatility. The less skeptical investors also add a question about where the ASP fits in one’s overall wealth allocations.

Naturally, regardless your age and investment horizon, lower risk portfolios are beneficial as they reduce the stress experienced during panicked markets. Even though the expected absolute return any year is also lower, the decreased volatility will mean a smoother ride with similar long-term annual returns

Mainly, it is a matter of narrowing the cluster of outcomes of each year around a mean, and avoid the big swings from one year to the next. But it doesn't necessarily mean you should devote all your savings to a low-risk strategy and completely abandon the more "exciting" investments.

When this is understood, a common follow-up question is where a portfolio such as the All Seasons Portfolio fits in the management of your overall wealth.

The All Seasons Portfolio should be the stable portfolio at the core of your assets, on top of which you can build with riskier investments. Therefore, to better understand this, in this post, first published on my eToro feed, we explore more closely how it fits in your personal finances.

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eToro Post – Different Types of Inflation and Assets That Hedge Against Each

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Surely you have not missed the talks about inflation the past year. Even from the Fed and Yellen, the sentiment about inflation has changed from “not a problem” to “transitory” to “longer than first expected” and now to “good for the economy”.

While the price of risk assets, such as stocks, may also inflate due to the rise in inflation, they are not rising as much in real terms.

Rising inflation, and especially inflation that is higher than expected, is harmful to most common portfolios that comprise of stocks, or a combination of the two like the 60/40 Portfolio. Both stock and bonds are assets that perform well in times of low or decreasing inflation, and will lag in times when inflation rises.

It is thus vital to have a portfolio which also includes inflation hedges to mitigate the risk of unexpected inflation prints.

In this post, we will be looking at different types of inflation - as inflation can manifest in different ways - and how you can protect your wealth against each of them with different assets.

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