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Pay Less Attention to the Fed and Focus on the Big Picture



While the quarterly FOMC meeting undoubtedly deserves attention, we suspect that investors are missing the forest for the trees. As long as I have been working in this industry, the Fed has generally always been behind the curve (i.e. they are a lagging indicator). The big picture trends that are impacting risk assets have been brewing for some time. Let’s review a few of them.


Inflation is rising and the trend in US rates is higher (mainly because the US economy is getting stronger) so most bond portfolios will be disappointed (if not properly hedged). Astoria has been vocal in avoiding most bond segments (Click here for reference).

Astoria has been significantly underweight fixed income and the parts that we own are either floating rate, non-traditional credit / spread products, or ultra-short duration. Astoria is utilizing SRLN, CWB, AGZD, VRP, VMBS, VTEB, and JPST to manage our fixed income risk throughout our portfolios.


US is leading the charge from an earnings standpoint and the reality is that it’s just not that expensive compared to the Rest of the World (ROW). To be clear, Astoria is still overweight the ROW (via QEMM & QEFA). However, we recently shifted our US equity exposure to tilt towards value and quality stocks. Most of our US equity risk is via USMF. This ETF provides us with high active share, value/quality tilt, and a skew towards midcaps. How many research reports do you read on midcaps - catch our drift?


Liquidity is tricky to model but on the margin there will be less of it in the system between Fed rate hikes, QT, and ECB curtailing their QE program. Will Japan follow suit with reducing their asset purchase program? Watch the JGB yield curve for what the market projects.


Start allocating towards commodities. They are cheap, uncorrelated to stocks and bonds, and are a hedge against rising inflation. In our 2018 outlook, we pegged commodities as the 2nd most important theme for this year (Click here for reference). We wrote another note in March 2018 highlighting the benefits of commodities in a multi asset portfolio (Click here for reference).


Lastly, our website has been redesigned. We’d love to hear your feedback!


Hope you all enjoy it.


Best, John Davi

Founder & CIO of Astoria


For full disclosure, please refer to our website: https://www.astoriaadvisors.com/disclaimer

Click here for photo source

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