August 2023 Dashboard: Our Three Layers of Risk Management

We manage risk within our strategic, long-term allocations based on diversification across equity, fixed income, and alternative assets and a focus on more attractive relative values.

We manage risk tactically over the short-term by investing across a broad array of themes and asset classes including cash. We can either invest opportunistically or defensively depending on the environment.

Our proprietary Cash Indicator (CI) provides insight into the health of the market by monitoring the level of fear using equity and fixed income indicators. This warning system is designed to signal us to either a 25% or 50% cash position to potentially protect principle and provide liquidity to reinvest at lower and more attractive valuations.

The CI remains at the low end of its historical range. Readings at these levels typically indicate that the markets are overly complacent and subject to downside surprise. While not signaling a potential crash, the CI’s level suggests caution.

Fixed income valuations remain attractive, as do equities except the few that have rallied recently.

Equity Valuations: Large Cap U.S. equities look expensive, but this is primarily due to the appreciated prices of a few large companies. As a result, we think that attractive valuations may be found in areas of the U.S. equity market that have lagged in recent months as well as in foreign equities.

Equity Favorability: We continue to favor defensive equities as we expect global economic and market challenges ahead. We find these areas even more attractive as they have been largely ignored in recent months.

Fixed Income Valuations: With the yield curve persistently inverted and broad money growth falling, we expect headline inflation and long-term interest rates to decline over the next year. The 10-year Treasury yield looks attractive when over 3% while short-term interest rates should stabilize.

Fixed Income Favorability: We remain overweight U.S. Treasuries and have moved from floating rate to fixed rate at the short end of the yield curve while still favoring interest rate sensitivity. We are underweight credit risks as we expect those areas to underperform in a challenging environment.

We recently added exposure to midcap value. The equity market has dramatically favored a handful of large cap growth companies. This distortion has created attractive relative value opportunities in other areas of the equity market, such as in midcap value. We continue to see a wide range of tactical opportunities in defensive equity sectors, such as health care, as well as equity income and MLPs. In addition, the recent move higher in long-term interest rates makes the Treasury market even more attractive.

We remain cautious about the global economy and markets as economic weaknesses persist.

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DISCLOSURES

Any forecasts, figures, opinions or investment techniques and strategies explained are Stringer Asset Management, LLC’s as of the date of publication. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to error or omission is accepted. They are subject to change without reference or notification. The views contained herein are not be taken as an advice or a recommendation to buy or sell any investment and the material should not be relied upon as containing sufficient information to support an investment decision. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.

Past performance and yield may not be a reliable guide to future performance. Current performance may be higher or lower than the performance quoted.

Data is provided by various sources and prepared by Stringer Asset Management, LLC and has not been verified or audited by an independent accountant.