2022 was a shaky year for capital market.
Interest rate risk is an important type of risk to be aware of as an investor, as it affects stocks and bonds indiscriminately. That is especially harmful for investors only investing in stocks or using a "balanced" stock-bond portfolio.
We will therefore be taking a closer look at what it is and whether there is anything we can do as investors to protect our wealth and portfolios against it.
Diversification is the fundamental feature of portfolio management and asset allocation, but is there more to it than just measuring correlation and calling it a day?
In this article, we look more closely into the concept of convex return relationships between assets, ensuring that diversifiers perform and thus protect against the drawdowns of other assets in the portfolio.
Convex diversification profiles play an important role in the All Seasons Portfolio for making drawdowns shallower and creating opportunities for earning rebalancing premiums.
In 2022, inflation made its presence clear and undeniable. While it can be argued whether we experienced an inflation "surprise", investors were reminded of the importance of inflation hedges in their portfolios as stocks and bonds suffered.
Gold is one such inflation hedge, but he narrative in financial media has bashed its capabilities of protecting against inflation in 2022, as the gold price ($) was barely flat for the year.
In today's article, we will be reviewing whether gold has lost its appeal as an inflation hedge, or if it rather needs to be viewed from a different angle.
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.
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.
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.