Portfolio Update – May 2022

Market update of May 2022 includes a growing dependency on the next few inflation prints, as these will determine the strength of Fed's reactions and in extent the direction of the stock and bonds markets.

With negative QoQ real GDP growth in the US and continuing high inflation, we are not far from a technical recession and truly entering a stagflationary environment. While not there completely yet, the risk will put pressure on growth assets and nominal bonds, why broader exposure to other assets is recommended.

In my All Seasons Portfolio, the above factors impacted monthly returns negatively, but I expect my strategy to be prepared for the uncertainty ahead with continuing overweighting to inflation assets.

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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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Portfolio Update – April 2022

Market update of April 2022 includes a continuing emphasis on interest rate risk on the back of rising inflation, albeit recession fears raise questions of the timing of rate hikes and the impact on the economy. We'll analyze what the indicators tell.

As a result of the current inflationary environment, strongest portfolio performers include commodities, gold and VIX in April, but much of the profits were offset by losses in bonds. Portfolio overall remained stable.

In my strategy, a couple of tweaks have been implemented last month: i) tactical tilt toward inflation-linked bonds from nominal bonds, and ii) introduction of leverage through margin. Read more about these changes in this month's post.

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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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Portfolio Update – February 2022

This month, I will be trying a slightly changed format for this monthly update post.

Previously, I have combined a deep dive/insights text with an update of my portfolio performance, but I have been considering changing things up a bit.

Instead, I will today be first focusing only on a market update for the past month, together with looking a trends in economic growth and inflation (remember, the four regimes that the All Seasons Portfolio strategy is designed to fend off), before presenting my portfolio update on the back of it.

In February 2022, as well see from the indicators, we remain in an inflationary boom - for now - but it seems like stagflation could be on the horizon as the growth rate is falling.

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