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

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

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?

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

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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eToro Post – Systematic Trading and Strategic Rebalancing of Commodities

This pot was originally shared on my eToro feed on 13 March 2022. Make sure to follow me there as well, and did you know that you can copy my trading there for free? Create an account today, copy my portfolio by searching for user "Allseasonsport" to automatically duplicate my All Seasons Portfolio strategy effortlessly.

The benefit of a systematic strategy - like the one I run here on eToro - rather than a discretionary strategy is that you don't get in your own way when following rules that are proven to work.

Hence, by taking a trader/person with cognitive biases out of the equation, you increase the probability of success by avoiding mistakes caused by limits of the human brain.

It is intuitively hard to buy assets that are trending, as it feels more expensive by the day when the price goes up, and you tell yourself you will "buy the dip".

The problem is that when that dip occurs, the trend may be broken and the asset is no longer an attractive buy. That is when our cognitive biases hinder us from success.

When we go against rules, we tend to make mistakes, as the rules were set in place for a reason.

Due to these rules, I will be strategically rebalancing Commodities and Long-Term Treasury Bonds in my eToro portfolio as they have exceeded their rebalancing spans. Read more about my reasoning here.

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