Q4/2016 – Risk Assessment Beyond Yield Comparisons

This article was last updated on April 16, 2022

Canada: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…
USA: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…Rebalance is taking place to risk assessment that incorporates value as well as less quantifiable factors like political stress and business leadership. The post Brexit lurch in Britain shows even advanced country investing should not currently ignore broader considerations than momentum and quantitative ease as risk on/off determinants. After the November U.S. elections, the lame duck and 2017 sessions have serious issues. Amid resentment and angst, the U.S. Presidential campaign has bitterness routed in demographics and globalization. Still other issues like deficits need to be addressed. Many geopolitical stresses continued while others emerge for democracies. Further, the Federal Reserve can be expected by the end of 2016 to resume 25 basis point increases in the U.S. Fed Funds rate already overdue. Real growth appears labored while saving as bedrock of capital markets appears in stress in arenas like individual savings, asset liability discrepancies in pension funds and squeezed net interest rate margins in the still crucial Financials sector. In detriment to providing varied experience to capital market participants, quantitative ease has had long fixed income markets appearing obtuse while commodity markets undergo severe restructuring for clarity.

Despite periods of seeming tranquility, currency volatility has seeped even into G-7 countries as seen in Sterling as the travails of Brexit emerge. We strongly emphasize a quality tilt in portfolios. In asset mix amid turbulence, we have above benchmark cash and alternate assets including precious metals as balance to traditional investments like equities and fixed income. Geographically in underweight Fixed Income while taking currency risk also into account, we favor short to medium maturities in US dollars followed by Australian, Canadian, Norwegian and Singaporean denominations with an underweight in Europe, Japan, and emerging country denominations as well as in low quality corporate debt. While consensus dangles high hopes to then cut them, we have S&P 500 operating earnings for 2017 at 120 or 10% below consensus In equities, along  with focus on quality, we have overweight the U.S. and emerging markets as well as Australia and Canada while underweighting Europe and Japan. As a group for the business cycle, we favor Energy, Industrials and Materials over the Consumer areas. In growth, we see advantages in Information Technology over Healthcare. Instead of valuation risk in Consumer Staples or Utilities, we favor Telecommunications. Financial Services appear still crucial for the markets.