Asset Allocation
Global stocks and bonds delivered strong performance in November as investors responded positively to a better-than-expected U.S. inflation report. The October CPI report showed prices rising 0.4% over one month and 7.7% over the trailing 12-months. This data revealed slowing inflation and may be an indication that inflation has peaked. The market now expects the Fed funds rate to top out around 5.00% by May of next year.
The MSCI All-Country World Index was up 8.34% in November, higher than the S&P 500’s 5.56%. For the first time in a long time, it was emerging market stocks that were the strongest performers. Emerging markets were supported by a weakening U.S. dollar and signs that China may begin to loosen its restrictive zero COVID policy. Within the US, cyclical sectors such as materials, industrials, and financials outperformed.
Lower inflation expectations have helped push the 10-year U.S. Treasury yield down by over 0.50%, to end the month at 3.57%. Consequently, the U.S. Aggregate Bond index was up 3.81%. In the face of impending economic weakness, the price of oil declined, and WTI Crude ended the month at $80.55 per barrel.
Security Selection
In equities, exposure to emerging market stocks and international developed stocks contributed positively to performance. However, our equity portfolio’s underperformance versus the global equity benchmark was due to our modest U.S. overweight. Our positions in U.S. Factor Rotation ETF (FCTR) and U.S. Premium Income ETF (JEPI) were positive on the month but did not keep up with either the S&P 500 or the ACWI.
In Fixed Income, our active tilt towards short-duration bonds contributed to underperformance against the longer maturity fixed income benchmark. We are monitoring interest rates closely and will be quick to add duration into fixed income portfolios should a confirmed downtrend materialize.
Detractors from Performance
Contributors to Performance
U.S. Factor Rotation
U.S. Equity Premium Income
Russell 1000 Value
ActiveBeta Emerging Market Equity
ActiveBeta International Equity
Emerging Market Sovereign Debt
Underweight
Overweight
Emerging Markets
Technology Sector
Long Duration Fixed Income
Consumer Staples Sector
U.S. Value
Treasury Inflation Protected Securities (TIPS)
Strategic Allocation Rationale
Asset Allocation:
As we move into December, we are equal weight equities and cash. We are underweight fixed income and commodities.
Equities:
We are near-term neutral on equities and maintain an equal weighting to the asset class. In the medium-term we are bullish, particularly on international stocks where a peak in the US dollar may usher in a period of relative strength. We are overweight US equities but are selective and defensive with our exposures. We continue to favor quality and companies with pricing power.
Fixed Income:
We are moderately underweight fixed income. Inflation is peaking but it remains elevated, therefore eroding real returns. Yields have risen to attractive levels, and we prefer to take advantage using a hold-to-maturity approach. We continue to maintain a short duration profile. We are monitoring the US 10-year treasury yield closely, and should a confirmed downtrend emerge we intend to add duration to the portfolio.
Alternatives:
We are underweight commodities but will be monitoring the technicals for signs of strength. We are bullish on the asset class in the medium term.
Portfolio Changes Since Last Month
Decreased
Increased
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Disclosures: This information was produced by and the opinions expressed are those of Accuvest as of the date of writing and are subject to change. Any research is based on Accuvest proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however Accuvest does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. Any sectors or allocations referenced may or may not be represented in portfolios of clients of Accuvest, and do not represent all of the securities purchased, sold or recommended for client accounts.
The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results. Actual results may vary based on an investor’s investment objectives and portfolio holdings. Investors may need to seek guidance from their legal and/or tax advisor before investing. The information provided may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that shown here. The information presented, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.