Our Cash Indicator methodology acts as a plan in case of an emergency. This is analogous to the multiple safety systems in a modern automobile, which includes an airbag. Importantly, each of these systems work together to potentially help smooth the ride.
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.
Cash Indicator: Markets are functioning properly, but we expect continued volatility.
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 has elevated to a level closer to historical norms. We think this movement is the result of a healthy amount of equity market volatility, which can be useful for disciplined investors with the ability to take advantage of market dips.
Fixed income valuations are attractive, as are value, quality, and dividend-oriented equities.
Equity Valuations: Outside of the Magnificent 7, we are finding a broad range of attractively valued equities. These areas include the value style, quality, and dividends.
Equity Favorability: The equity market has recently shifted in favor of many of the areas that had been left behind during the narrow market rally. We expect that trend to continue as a healthy sign of broader equity market participation.
Fixed Income Valuations: At current interest rates, high quality fixed income looks very attractive while high yield is less attractive on a risk-reward basis.
Fixed Income Favorability: Our allocations are positioned to generate attractive current yield while protecting against large interest rate moves and the risk of credit deterioration. With the U.S. Federal Reserve initiating an interest rate cutting cycle, we expect short-term interest rates to fall substantially while long-term interest rates do not adequately compensate investors for the associated risks. We are finding attractive opportunities to lock in current income levels in the belly of the yield curve through investment grade fixed income instruments.
We favor quality and defensive equity, as well as investment grade intermediate fixed income.
With the expectation for persistent but slower economic growth, we continue to favor areas that have demonstrated consistent earnings growth over time. These investments offer both the potential for downside protection as well as gains due to their more durable business models. As a result, we recently increased our exposure to an insurance industry ETF while also adding to an information technology ETF and a blue-chip equity ETF that can offer downside protection. The insurance industry is expected to grow earnings faster than the equity market while still trading at an attractive valuation. Additionally, this industry has shown resilience and steady cash flows due to the essential nature of its offerings.
We expect global economic growth to persist despite softening economic indicators.
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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.
