Right now, momentum is strong, liquidity is extraordinary, and excitement for stocks is quite high. There are stories circulating of profitable day trading which is reminiscent of the late 1990s.
Various macro-economic indicators that Astoria Portfolio Advisors tracks have troughed. Some have inflected higher, albeit by a small amount. It is important to keep in mind that markets are forward-looking and move based on the rate of change. This is a key reason why stocks have rallied substantially higher off the lows.
Astoria increased exposure to risk assets earlier this year despite many market participants arguing for defensive posturing at the time and hence, missing a substantial amount of the current rally.
When Astoria Portfolio Advisors began 3 years ago, we told investors that we would over communicate and produce insightful, forward-looking research. One risk that is not currently being priced into the market is November’s US elections. See Astoria’s recent tweets.
Photo source: Bespoke via Twitter.
Not to mention, betting markets are currently pricing a full democratic sweep.
Photo source: III Capital Management, Bloomberg LP via Twitter.
US stock valuations are on the high end compared to history (we were quite bullish when forward multiples were in the mid-teens in late March). Granted it is difficult to know what the upper boundary for multiples are when Fed Funds rate is near 0%.
We believe a key opportunity for investors is in overseas markets. We have explained to our investors the risks of investing solely in US markets. As well documented, US stock valuations based on Case Shiller PE ratio remain near all-time highs.
Photo source: https://www.multpl.com/shiller-pe
If there is a cyclical upswing to the global economy, international markets could stand to benefit on a relative basis as they are more cyclical in nature compared to the US stock market. International stocks are also more attractive from a valuation and equity risk premium standpoint.
MCHI (MSCI China ETF) has outperformed SPY (S&P 500 ETF) by approximately 350bps YTD. Most people would have thought otherwise given COVID-19 originated in China. Game theory is an input into our portfolio construction process for this exact reason.
Photo source: KraneShares, Bloomberg via Twitter.
As we have explained in-depth, Astoria does not invest based solely on valuations, Fed policy, or technicals. Astoria builds long-term, strategic, and cross asset portfolios based on empirical evidence while combining both macro-economic and quantitative disciplines. Moreover, we focus on after-tax, after-inflation, and risk-adjusted returns. We are proponents of factor ETFs and alternatives. We do not know too many of our peers who implement all the above-mentioned disciplines.
Astoria Portfolio Advisors
Astoria Portfolio Advisors Disclosure: As of the time of this writing, Astoria held positions in the above referenced ETFs (MCHI, SPY) across a variety of our ETF model portfolios. Note that this is not an exhaustive list of our ETF holdings across either Astoria’s dynamic or strategic ETF portfolios. Our holdings will vary depending on risk tolerances, tracking error bands, and client mandates. For full disclosure, please refer to our website.