As of November 12th 2018

Portfolio Commentary

As 2018 comes to an end, the global economy and financial markets were jolted by a resurgence in market volatility, as well as in geopolitical uncertainty, in the form of trade tariffs and Emerging Market economic pressures.

Consequently, the number of countries and financial markets that have generated year-to-date positive returns continues to dwindle, as the global economy begins to slow.

Despite this fact, there is still opportunity to be found upon the global macroeconomic landscape. From our research, through our Bullish Quantitative Macroeconomic Asset Allocation Model, we have narrowed down the top two countries for global macro investors to invest in: United States (US) and Israel.

United States - 33.24% Allocation

 

In the US, GDP is expected to be 2.5 percent in 2019, and decline to 1.8 percent in 2020, as the fiscal stimulus from the 2018 tax cuts are expected to wear off, and as the Federal Reserve is expected to maintain a bias towards hiking the Fed Funds rate, albeit at a more gradual pace. Nonetheless, the US economy is still expected to be a beacon for investors in 2019, as global interest for US assets, as well as US consumption, continues to remain strong and steady.

Israel - 34.55% Allocation

 

In Israel, Israeli assets benefit from two key drivers that are helping to push the Israeli economy forward.  

The first driver is the country's resilient economy, relative to its peers. The dynamics of Israeli's high tech sector, increased energy independence, in the face of its regional peers, and a strengthening external position in the face of blowing macro headwinds, will help to support more favorable growth rates relative to its economic peers.

The second economic driver is the country's declining debt level. Israel's general government debt ratio has declined by more than 10% since 2008, to around 60% of GDP, reflecting a prudent budgetary framework and robust growth performance. Furthermore, central government deficits have remained below 3% of GDP over the past 4 years, despite repeated upward revisions of the government's own deficit targets.

Floating Rate Bonds - 32.21% Allocation

Lastly, we would recommend approximately 32.14% of this portfolio to be allocated towards floating rate bonds. As the Federal Reserve continues to hike interest rates and tighten monetary policy, the global economy is faced with a rising interest rate regime. Consequently, as a way to reduce portfolio volatility and generate additional income, allocating a percentage of one’s portfolio floating rate bonds - bonds whose coupon rate’s increase as interest rates increase, investors can rest easy.

Notes on results:

  • Past performance is not a guarantee of future results, which may vary. All use is subject to our terms of service.

  • Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time.

  • All portfolio returns presented are hypothetical, and backtested as far back as possible. Hypothetical returns do not reflect trading costs, transaction fees, or taxes.

  • The backtested results assume monthly rebalancing of portfolio assets to match the specified allocation

  • The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.

  • The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities.

  • The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.

  • Sharpe and Sortino ratios are calculated and annualized from monthly excess returns over risk free rate (3-month treasury bill)

  • Stock market correlation is based on the correlation of monthly returns

  • Drawdown analysis is calculated based on monthly returns excluding cashflows

  • CAGR = Compound Annual Growth Rate

  • MaxDD = Maximum Drawdown - The maximum observed loss from a peak to a trough of a portfolio.

  • AvgDD = Average Drawdown - The average observed loss from a peak to a trough of a portfolio, over a specific time period.

  • VaR = Value at Risk - a measure of the risk of loss for investments, that estimates how much a portfolio might lose, under normal market conditions.

  • CVaR = Conditional Value at Risk (aka The expected portfolio shortfall) - a risk assessment measure that quantifies the amount of tail risk an investment portfolio has.

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Economics Global is not a registered investment advisor. Any provided recommendations, statements, information or opinion provided throughout the Economics Global website are for general information purposes only. It is not intended to be personalized investment advice or the solicitation for the purchase or sale of financial securities and/or assets. The information contained in this publication, and on this website, are based upon, and/or obtained from, publicly available sources that we believe to be reliable. Economics Global makes no claim(s) as to their accuracy or usefulness of the information provided. Past performance is not indicative of future results. You further agree that Economics Global research, advice, information, and/or recommendations will not be liable for any losses or liabilities that may be occasioned as a result of the research, advice, information and/or commentary provided. Do not buy or sell any stock without conducting your own due diligence or consulting an advisor. Employees, directors, officers and/or partners may hold a financial or other interest in funds and/or international securities mentioned.

 

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