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Portfolio Reallocation

Hi,

Several people have asked me to do a video on my portfolio for 2019. I don’t really like publishing this in case people copy me, which is not a good idea. My risk appetite and my views are unlikely to match yours. The goal in publishing my portfolio is that people see my risk-based approach to investing.

Here’s a video explaining what I’m about to do.

Here is what I’m planning for this portfolio change:

  • Simplification: I’m going to cut the number of funds down to three
  • Lower Risk: While my equity/bond allocation is going to stay at 40% equity to 60% bonds I’m going to go for safer global equity exposure…
  • Value To Low Volatility: For my equity exposure I’m going to do away with my UK bias because I’m no longer convinced the UK will get a good deal or do what’s best for the economy. Vanguard’s Global Minimum Volatility fund offers exposure to global real estate (which you can’t buy directly through their funds) and is only around 50% US-based. This fund is globally diversified and is also more defensive than Vanguard Value if markets sell off.
  • Increase EM Sovereign Bonds: I don’t think there is going to be an EM sovereign debt crisis given that the Fed has stopped raising rates for now. Also EM economies, particularly in Asia, are doing okay. China’s PMI has stabilised and this is good for the region. China is also the largest exposure for this fund. The yield on VEMT is 4.7%.
  • UK Investment Grade Credit: For my safety play I’m switching to UK Investment Grade credit. This gives a higher yield than UK government bonds (VGOV 1.5%, VIUKGB 2.5%) but is still good as a diversifier for my equities.

I’m concerned by the levelling out of US corporate earnings as the sugar rush from the Trump tax cuts ebbs. Take a look at the latest earnings update from Factset (page 23 “Forward 12M P/E Ratio: 10-Years”) and you’ll see these are definitely losing momentum while US share prices continue rising.

https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_041819.pdf

While the Fed keeps its rate rises on hold there could still be some upside, but I think the market will take this back once US earnings roll over. We are also getting signals via the US PMI and retail sales that growth is finally falling back there too. It’s still a long way to a US recession but the US economy has definitely lost its shine.

A video is in the works for YouTube, but I thought I’d share it with you first.

Thanks,

Ramin.