Both stocks and bonds have struggled this year, leaving investors with few alternatives. Stocks and bonds usually move in opposite directions, but that hasn’t been the case this year. “A US 60/40 portfolio had a drawdown of c.25% in real terms YTD, with bonds and equities selling off together,” Goldman Sachs analysts wrote in a note last week. In light of that, many investors have turned to holding cash in their portfolios, or short-term Treasurys. Analysts share their strategies on how to thrive in these difficult conditions — including one behind the success of an index that beat the S & P 500. Trend-following strategy Adopting the so-called trend-following strategy this year would pay off for investors, according to Goldman and Wells Fargo in recent notes. Investors who use this strategy take long or short positions, using computer models “without any emotional inhibition,” said Wells Fargo. It works on the premise that the market is always correct, and takes positions in line with the direction of prevailing price trends. “As the Russia-Ukraine war and global inflation intensified, trend-followers began delivering strong gains, generally via bullish positioning in the U.S. dollar and bearish positioning in global bond futures,” said Arun Kumar, lead retail research analyst at Wells Fargo Investment Institute. “As equity indexes have exhibited bearish trends, trend-followers have turned short and, in our view, may likely gain from further declines,” he added. The Societe Generale Trend Index — which is based on trend-following — has been “almost a mirror image” of the losses in the S & P 500 index, according to Kumar. According to the Societe Generale website, this index has spiked around 37% this year. By contrast, the S & P 500 has fallen around 20%. Investors looking to follow such a strategy can consider momentum ETFs , which are based on price momentum. “Diversification towards new safe assets that are less sensitive to rising rates, e.g. more recently the Dollar, up-in-quality shifts in equities and credit, as well as allocation to trend-following strategies, have become more effective risk mitigation strategies,” said Goldman analysts. “Overall, we believe the trend-following strategy may likely gain further as global central banks still have a long fight against inflation,” said Kumar of Wells Fargo. Commodities Goldman said it’s positive on commodities for the next 12 months, as inflation looks here to stay. “We continue to believe in the coming years that allocations to real assets are more beneficial in multi-asset portfolios with higher inflation and inflation volatility,” Goldman analysts wrote. The investment bank says it likes “more defensive real assets” for the near term, such as infrastructure, gold and Treasury inflation-protected securities. While stocks and bonds have suffered, commodities were up 12.74% as of Oct. 18, said Wells Fargo Investment Institute in a Oct. 24 note, referring to the Bloomberg Commodity Index. “Commodities outperforming recently is important to note. Portfolio diversification can, and often should, include more than stocks and bonds,” said Hazlitt Gill, retail investment research senior manager. “Not all portfolios, but for those with certain risk tolerances, portfolios can benefit from diversifying into other non-correlated areas, such as commodities and hedge funds.” Staying defensive Goldman, which is staying defensive in its asset allocation till the end of the year, said it’s positive on cash , neutral on bonds and negative on stocks. “We see continued headwinds from higher real yields and a weak growth/inflation mix,” the bank’s analysts wrote in a note last week. Alternative investments UBS in an Oct. 21 note said investors can use structured investments to “tilt the odds favorably.” Structured investment products typically involve exposure to fixed income markets and derivatives. “For example, some structured investments may be able to offer downside protection on the investment, a fixed coupon payment until maturity, or other features to adjust the likely distribution of returns to limit the risk of losses,” UBS wrote.
Sumber: www.cnbc.com
