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Portfolio Update – June 2020 – We’re In The Clear: Shift To Stocks! But Not Really…

  • Summary of June 2020 in the economy – Stock market is still uncertain
  • Monthly portfolio update: Fairly stable month: long-term bonds down, stocks, gold and commodities up
  • Book tip: Balanced Asset Allocation: How to Profit in Any Economic Climate by Alex Shahidi (link at the bottom of the post)
  • In case you missed it: Deep Dive post about how to hedge against inflation on my Patreon page was published earlier in June

Hello and happy summer,

I am so glad that you have found your way to my June portfolio update of the All Seasons Portfolio blog. It is a rainy afternoon here in Stockholm that I am writing this in early July. Still keeping social distancing and working from home quite a lot. Hoping to see a change soon, for the benefit of all fellow Europeans. We really need to get the economy going again, as I am sure you agree. Hope you have been able to keep your job though.

This month, I have come to the conclusion that the time for stocks is now, at least if you look at what is going on in the markets. Not sure if I am convinced this is the way we are heading, so I prefer to diversify my portfolio properly.

The stock market have bounced back from the steepest downturn in memory, and what looks like the shortest recession in history if you only look at the stock market development. The stock market is almost back at similar levels to where they were before all hell broke loose in February, regardless but S&P 500 saw almost flat development over June with +1.8%. Mostly, the climb in stocks were driven by tech and “stay at home” companies, as Nasdaq composite rose 6% over the month.

On top of that, central banks and governments over the world are launching new stimulus packages by the week, as we covered in last month’s update. The two acronyms TINA and FOMO are the main forces driving the markets upwards. As a reminder, these stand for “There Is No Alternative” and “Fear Of Missing Out”, meaning that investors see that there is no alternative to stocks to achieve return, and investors are afraid to be left at the station if they do not jump on the train as soon as possible. Both of these are driving great amount of money into the stock market, increasing demand.

The question is though: will the V shape recovery hold? Perhaps. Maybe we will experience a set back during the summer or autumn, as it is obvious that we are not in the clear of the virus. The United States see an increasing amount of cases again, and many countries are fearing a second wave.

Moreover, most companies are still experiencing disruptions in both their supply chains and in revenue. Many are cutting down on R&D and staffing to shrink their costs to a manageable level, with consequences for their staff and thereby on consumers.

The think is, the recovery of the underlying economic growth is not at par with the recovery on the stock market. Central bank stimulus will only get us so far, but in the intermediate and longer term, there are great risks ahead. Perhaps we are now witnessing tendencies of a bubble, but when will it burst? And are you prepared?

Thus, we are not in the clear. Not by far. The uncertainty we have experienced the whole spring is still there, and now the stock market are again at high levels. I don’t know about you, but I have felt a bit of vertigo lately, as soon, the only way we can go after a second way would be down.

The name of this blog post is “We’re in the Clear: Shift to Stocks!”, but while that is how many market participants have acted, I am not as convinced, as you may have guessed. There is still much uncertainty out there.

In my humble opinion, we are likely to see a W shaped recovery, but that the other valley of the “W” will not be as deep. It is unlikely that countries will shut down completely again, but t take a softer approach during a second wave.

Regardless, I feel comfortable with my Treasury Bonds and TIPS in my All Seasons Portfolio as a hedge against another dip. I am considering rebalancing my portfolio within short, which would mean to sell stocks and som gold, and buying bonds. We will only know in hindsight if that would have been made with correct timing.

Other assets may also be telling us what markets think. Gold, which is seen as a hedge against inflation and against rough times on the market, are still at record levels and reached USD 1,775/oz by end of June. This indicates investors are still nervous, and are including gold as a hedge in their portfolios.

Long Term Government Bonds, are also stable, and have not moved much the last months. If investors were convinced that the crisis was over, they would sell bonds and buy stocks. Instead, they hold onto bonds still, keeping the yield fairly flat, as evidenced here below.

Moreover, the VIX index, or the Fear Index as it is also called, is still at high levels of about 30-40 during June. As this is a measure of the option spreads on the S&P 500, and is a forward-looking indicator, shows that investors are worried.

To summarize: do not ditch the All Seasons Portfolio strategy just yet (if that would ever be wise). Stocks are likely to be volatile for a while longer, and as we cannot predict the market movements, it is better to be safe and diversify properly.

Portfolio Update June 2020

Let us now turn our attention to my All Seasons Portfolio. There have been no buying or selling this month, so all holdings are as they were a month ago when I posted my May 2020 update.

Most of my ETFs have moved quite sideways, but have seen a total month-by-month improvement of about 0.90%. This was mainly driven by Commodities, Gold and Stocks, while Government Bonds have been dragging a bit behind. Inflation-Linked Bonds are, however, slightly positive, but mostly flat.

Looking more closely at my portfolio, gold is still heavier than I would like it to be, so I am seriously considering rebalancing from gold to TIPS. This way, I will maintain my hedge against inflation, as well as for lower economic growth, but with less exposure to an asset that may be seeing a lot of inflow from speculators now.

Would I have had more money invested, I would also consider selling off a little bit of stocks to bring that down to 30%, but as we would be talking about so small amounts and few ETF units, the transaction costs would be too expensive relatively. Will wait and see what happens the coming months before touching stocks I believe.

Other than that, most assets are where I want them. Slightly below on Long-Term Government Bonds though, and I may want to enjoy the ride on the Commodity come-back if oil and energy prices would bounce after the miserable levels of this Covid-19 outbreak.

Turning our attention to the development of splits in EUR, this graph is different from what it used to look like.

Previously, the numbers went all the way back to 1 January 2019, but back then, I only had few ETFs in my portfolio, and it was not even slightly looking like an All Seasons Portfolio. I have learned along the way, that to really enjoy the benefits of this strategy, I should have collected enough money from the start to do it properly, instead of buying little bit here and there. You should consider this learning as well if you are in the starting blocks.

I have therefore changed the next two graphs so that the starting point is January 2020. This is because by then, I did a big rebalancing to actually attain the All Seasons Portfolio splits. So from now on, you will see actual development of the All Seasons Portfolio strategy, even though it may seem that the data represents a shorter period.

Then again, there are other things I would have done differently this year. For example, I would have gone with a pure American exposure (tracking S&P 500, US treasury bonds for the bonds, and American TIPS rather than global inflation-linked bonds). Now, my portfolio is not performing as it should, as my geographical exposure is too mixed. I will correct this the coming months.

Lesson #2 for you today is therefore: Focus on one geographical exposure to decrease volatility. For example: American exposure, American exposure with EUR Hedge, Global exposure, or European exposure. Try to have the same geographic exposure throughout the portfolio for stocks, government bonds and inflation-linked bonds.

Because of my mixed exposure, my All Seasons Portfolio is trading in negative territory YTD. My global stocks have not performed as nicely as American ones, which creates some drag.

Moreover, American bond ETFs (mainly Long-Term Treasury Bonds, but also TIPS) have outperformed their Global and European equivalents by far. This means, that with pure American exposure, my portfolio would be in positive territory with 4-5% margin. Lesson learned on my end.

Lastly, here’s a view of the ETFs in my portfolio, and the performance of each during the last month, in table form.

iShares Global Inflation Linked Govt Bond UCITS ETFTIPSIE00B3B8PX14€456.95€458.400.32%
Invesco US Treasury 3-7 Year UCITS ETFGovt Bond MidIE00BF2FNQ44€396.83€392.20-1.17%
iShares USD Treasury Bond 20+yr UCITS ETFGovt Bond LongIE00BSKRJZ44€1,099.32€1,090.00-0.85%
Invesco Bloomberg Commodity UCITS ETFCommoditiesIE00BD6FTQ80€309.82€316.362.11%
Xtrackers Physical Gold ETCGoldGB00B5840F36€455.10€463.041.74%
Vanguard FTSE All-World UCITS ETFEquityIE00B3RBWM25€1,202.40€1,225.761.94%

This concludes what I have been thinking about this past month. I have little clue of where we will be heading, but I am pleased to be prepared with the All Seasons Portfolio. Predictions are still very difficult these days with TINA and FOMO making it difficult to rely on the stock market for future gains.

Thank you once again for your attention. If you don’t subscribe to the newsletter, now is a good time to sign up, so that you always get a notification when I add a new post (no other spamming than that).

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See you again in the beginning of August for the July update, or in the comment section below or social media.

Until next time, and stay safe,

Book tip: Balanced Asset Allocation: How to Profit in Any Economic Climate by Alex Shahidi

The conventional portfolio is prone to frequent and potentially devastating losses because it is NOT balanced to different economic outcomes. In contrast, a truly balanced portfolio can help investors reduce risk and more reliably achieve their objectives. This simple fact would surprise most investors, from beginners to professionals. Investment consultant Alex Shahidi puts his 15 years of experience advising the most sophisticated investors in the world and managing multi-billion dollar portfolios to work in this important resource for investors. You will better understand why nearly every portfolio is poorly balanced and how to view the crucial asset allocation decision from a deeper, more thoughtful perspective.

The concepts presented are simple, intuitive and easy to implement for every investor. Author Alex Shahidi will walk you through the logic behind the balanced portfolio framework and provide step-by-step instructions on how to build a truly balanced portfolio. No book has ever been written that discusses asset allocation in this light.

  • Provides insights from a top-ranked investment consultant using strategies from the industry’s brightest minds
  • Proposes a balanced asset allocation that can achieve stable returns through various economic climates
  • Introduces sophisticated concepts in very simple terms

For those who want to better manage their investment portfolio and seek a more advanced approach to building a balanced portfolio, Balanced Asset Allocation: How to Profit in Any Economic Climate provides an in-depth treatment of the topic that can be put to use immediately.

For anyone interested in the All Seasons Portfolio and Risk Parity investing, this is a great read that I strongly recommend. Or check out other great books on the topic on the Book recommendation page.

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