- Aggressive monetary and fiscal stimulus along with explicit statements by central bankers about their intended support has continued to be supportive of global equities. Our research exhibits more confidence in Emerging Market equities due to fair valuation, positive investor momentum, and the Federal Reserve’s accommodative monetary policies which help to somewhat relieve their U.S. Dollar based debt burdens.
- The model’s preference in fixed income is more focused on shorter-term U.S. Treasuries as the risks to intermediate-term Treasuries from interest rates rising outweighs the benefits of the yield they offer. Credit continues to benefit from the extraordinary Fed intervention in the credit markets though risks remain due to the increased amount of debt.
- As the Fed drives interest rates further below the rate of inflation through its Treasury purchases and rate guidance, real rates have fallen further into negative territory which has continued to be supportive for a favorable Gold outlook. While the outlook for Commodities remains mixed, their undervalued nature along with nascent signs of a catalyst for reinvestment may be on the horizon.
In response to the outbreak of the COVID-19 global pandemic, the U.S. Federal Reserve has implemented its most aggressive easing of monetary policy in history and has stated quite explicitly that it will continue to pursue an accommodative monetary policy for the foreseeable future. Emerging market economies and EM equity markets tend to benefit in particular from accommodative financial conditions promoted by the U.S. Fed because a significant portion of EM government and company debt is denominated in U.S. Dollars. Adding to the attractiveness of EM equities is the fact that they tend to be more fairly valued on a relative basis than other equity indices, particularly U.S. equities. Two other positive factors that currently favor EM equities include steepening yield curves, which can be supportive of economic growth, and positive investor momentum.
Our model research has also identified U.S. equities as being supported by monetary and fiscal stimulus though risks remain due to the overvaluation of the U.S. equity market as well as the level of concentration by a handful of megatech companies. Japanese and German equities also benefit from their own monetary stimulus measures. In addition, steepening yield curves points to the potential for improved growth prospects.
The model’s preference in fixed income is more focused on shorterterm U.S. Treasuries as the risks to intermediate-term Treasuries from interest rates rising outweighs the benefits of the yield they offer. Credit continues to benefit from the extraordinary Fed intervention in the credit markets though risks remain due to the increased amount of debt.
As the Fed drives interest rates further below the rate of inflation through its Treasury purchases and rate guidance, real rates have fallen further into negative territory which has continued to be supportive for a favorable Gold outlook. While the outlook for Commodities remains mixed, their undervalued nature along with nascent signs of a catalyst for reinvestment may be on the horizon.
Short-Term Fixed Income & Cash continue to serve as dry-powder to reinvest in assets at potentially lower prices in the future.
ABOUT 3EDGE ASSET MANAGEMENT
3EDGE is a multi-asset investment management firm that utilizes a proprietary model to analyze market valuation metrics (long-term), economic forces (medium-term), and investor behavioral factors (shortterm) that we believe drive the global capital markets. Our team of professionals draws on decades of investment management experience and their research in quantitative methods, including system dynamics, machine learning, artificial intelligence, and multi-player game theory to seek to identify undervalued and overvalued asset classes across the globe that may be poised to enter a period of market outperformance or underperformance. While we aim to generate attractive risk-adjusted returns, we also prioritize risk-management in an effort to limit portfolio declines for our clients, particularly during periods of extreme market disruptions. Our clients include individuals, family offices, institutional investors, and registered investment advisors.
CHANGE TO ASSET ALLOCATION ACROSS MAJOR ASSET CLASSES (TRAILING 12 MONTHS)
3EDGE GROWTH STRATEGY
3EDGE TOTAL RETURN & ESG STRATEGIES
3EDGE CONSERVATIVE STRATEGY
DISCLOSURES: This commentary and analysis is intended for information purposes only and is as of July 2, 2020. Allocations shown above reflect target allocations for the 3EDGE Growth, ESG, Total Return and Conservative Strategies (the “Strategies”) as of the date the allocation change was made and individual investor allocations may differ. This commentary does not constitute an offer to sell or solicitation of an offer to buy any securities. The opinions expressed in View From the EDGETM are those of Mr. Folts and Mr. Biegeleisen and are subject to change without notice in reaction to shifting market conditions. This commentary is not intended to provide personal investment advice and does not take into account the unique investment objectives and financial situation of the reader. Investors should only seek investment advice from their individual financial adviser. These observations include information from sources 3EDGE believes to be reliable, but the accuracy of such information cannot be guaranteed. Investments including common stocks, fixed income, commodities and ETFs involve the risk of loss that investors should be prepared to bear. Investment in these Strategies entails substantial risks and there can be no assurance that the Strategies’ investment objectives will be achieved. Past performance may not be indicative of future results. *Short-Term Fixed Income and Cash includes cash, cash equivalents, money market funds, and fixed income funds with an average duration of 2 years or less. Intermediate-Term Fixed Income includes fixed income funds with an average duration of greater than 2 years and less than 10 years. Real Assets (Gold & Commodities) includes precious metals such as gold as well as investments that operate and derive much of their revenue in real assets, e.g., MLPs, metals and mining corporations, etc. View from the EDGE is a registered trademark of 3EDGE Asset Management, LP.