By Jeremy Schwartz, CFA
Global Chief Investment Officer
Follow Jeremy Schwartz @JeremyDSchwartz
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On a recent episode of Behind the Markets, I had the pleasure of speaking with Sam Rines, Managing Director and economist from CORBU, a research intelligence and advisory platform.
We discussed Sam’s latest views on the economy, inflation and key investment themes, but also notably a collaboration for new Model Portfolios we are making available through our Portfolio and Growth solutions platform.
CORBU x WisdomTree PolyMacro Model Portfolios are designed using CORBU’s proprietary “bottom-up macro” thematic framework. This proactive, data-driven process allows for forward thinking portfolios that incorporate the best opportunities and avoid the biggest investment risks.
WisdomTree’s differentiated suite of ETFs and our Model trading and implementation platform provide a unique ability to execute Models for advisors in a cost-effective manner.
• Driven by a combination of near-term and longer-term themes
• Designed for low turnover
• Consistently researched with distributed content
This is not the investment landscape of the early 21st century. With globalization backtracking, volatile global government bond yields and national security coming to the forefront of policy-making, investing now requires a different mindset.
PolyMacro aims to take advantage of these policy pivots through a thematic view of global markets and asset allocation. The PolyMacro portfolios are much different than a traditional “index” approach, with an eye to what will work, not what has worked.
The current PolyMacro Model has three investment themes at the core:
• Fed miss takes
Regionalization and De-escalation
Geopolitics are driving two of the investment themes in the current portfolio. One of the major economic trends in the post-COVID world is near-shoring or friend-shoring to lower the risk of supply chain dependencies on China.
Mexico has been a big beneficiary in North America for manufacturers who do not want to put more capital on the ground in China. But Allied Asia also is seeing a renewed focus. Japan in particular is the closest ally.
Sam discussed that what he likes most about Japan now is the small-cap companies growing their dividends and being better stewards of capital with capital distribution growth is very positive.
Is China Investable?
Sam’s take is that allocations to China must be quite tactical with regard to stimulus from the government. This year, CORBU’s view has been that geopolitical issues were trending toward de-escalation and that could provide another positive catalyst. But CORBU Models would trade around China rather than have a strategic holding.
Fed Miss Takes
This theme has two motivations:
1. The Fed is likely to make a mistake at some point
2. The market is likely to have many ‘miss’ takes as to what the FOMC is going to do
Both miss takes lead to opportunities in the bond market.
Sam likes the yields available in short duration corporate bonds. There are some dislocations in pricing but if the Fed does break something, there could be a dramatic repricing and lowering of rates that would support bond prices.
The 2-Year to 5-Year Treasury bonds are another way to express this theme, where re-pricing a possible Fed mistake would manifest.
Originally published by WisdomTree on June 1, 2023.
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