Don’t fight the Fed but also don’t be complacent
Right now, investor sentiment is quite high. 6 months ago when the Bulgarian yield curve inverted, all you heard was that the recession was coming. What gives?
The U.S. Federal Reserve’s overnight repo liquidity injection undoubtedly was and is a massive catalyst for stocks. Liquidity is ultimately what drives capital markets and stocks in particular (see chart above).
For us at Astoria, we are strategically shifting our portfolios to include more value-oriented parts of the global economy, diversifying across a suite of factors, using alternatives to soften our portfolio volatility, and systematically tax loss harvesting. We started Astoria with these tenets and it has worked well for us thus far.
It’s hard to get incrementally bullish on US Large Cap index beta after a significant rally and a material increase in valuations. The time to be bullish was when the market declined 25% in Q4 2018 (which was when we turned constructive on the market). We remain constructive but are strategically shifting our portfolios.
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Astoria Portfolio Advisors
Astoria Portfolio Advisors Disclosure: As of the time this report was written, Astoria held a position in QVAL, DON, IHDG, EDIV, MCHI, GDX, VTEB, VMBS, SPY, QUAL, IVE, USMV, MTUM, COMB, GLD, GLDM, and IAU. Note that this is not an exhaustive list of our holdings across our ETF portfolios, model delivery services, or client accounts. Our holdings will vary depending on risk tolerances, tracking error bands, and client mandates. For full disclosure, please refer to our website.
Photo Source: Bloomberg, Astoria Portfolio Advisors