Is the spook over yet?
After global financial markets were sent on a rollercoaster ride in April, which almost brought them back to their starting point, there was further stabilisation in May: Almost all asset classes recorded positive results. Only long-dated government bonds and shares from the healthcare sector suffered losses.
Year to date, European equities, led by the German DAX index, are showing high double-digit returns. The same applies to Asian and Latin American equities. Technology shares and shares in small companies are still nursing losses, even if these were sharply reduced in May. However, it should be noted that a significant proportion of these losses are attributable to the strength of the euro and the weakness of the US dollar.
The rapid recovery of the financial markets is very unexpected for many experienced market participants, as the damage to the global economy and the international community caused by Trump in the Rose Garden on 2 April is far from being fully visible, let alone contained. We are merely in a transitional period, as most of the announced tariffs have been suspended for three months.
Due to the rapid recovery, we are now back at the valuation levels of late March/early April, when we criticised high valuations of shares in major US technology companies. Risk premiums for the Nasdaq 100 and S&P 500 index have fallen back from about 5.5% p.a. on April 7 to around 4% p.a.
This reminds us to be cautious; hence we would not buy the S&P 500 Index, the Nasdaq 100 Index or similarly orientated technology funds or ETFs at current valuations.
We’ve informed clients who are heavily invested in these high-flying market segments to see the improved market sentiment as a second chance to re-balance portfolios:
- Apart from U.S. large cap quality and large cap technology, which have once again run hot, valuations generally look moderate to favourable.
- Bonds generally look attractive, especially when compared to current or breakeven inflation rates.
- Equity strategies that focus on low valuations and income (‘value’, dividend strategies, smaller companies) are also relatively cheap.
- The same applies to equities from developing countries, Europe and Asia. (See high-rise charts on pages 6 and 7).
We can therefore speak of a good environment for reinvesting money or adjusting portfolios away from U.S. (tech) stocks towards a more international strategy. In our opinion, a target size for US equities could be in the region of 50% of an equity portfolio.
As mentioned last month, we have expanded our range of European investment components and added attractive ideas from Asia and Latin America. This gives our clients many opportunities to react to changes in global dynamics.
In this context, I would also like to point out that our standard Dimensional building blocks (Portfolios 1 to 6) are generally very broadly based and have never been overly invested in U.S. large cap technology stocks. Clients who are already invested in these can therefore rest at ease, whereas clients who have perhaps found these building blocks too ‘boring’ should take a second look!
In my opinion, the best orientation for the composition of a portfolio is the current valuation of an investment. This is because the current valuation of an investment is a good indicator of the expected ten-year return.
We have therefore added a valuation traffic light to our high-rise charts to highlight their current attractiveness compared to their long-term expected returns.
This traffic light has worked very well so far because:
- High valuations (red) inevitably entail a higher risk of losses and lower expected returns,
- Compared to those with normal (yellow) or attractive (green) valuations.
We would therefore encourage you to use our valuation traffic light for future investment decisions!
For ‘fresh money’, we recommend our proven concept of FairHorizons, which we have developed based on established asset allocation principles.
It offers a simple way of creating portfolios that can beat inflation and earn attractive risk premiums.
We would suggest the following strategy for the coming quarters as part of the FairHorizon concept:
FAIRHORIZON PURPLE
Invest money that will be needed in a maximum of one year in the money market modules P5 and P7 or benchmark Portfolio 1.
FAIRHORIZON BLUE
Invest money that will not be needed for a maximum of 4 years in portfolio module Portfolio 2 or combine modules B15 and O1 in a ratio of 80/20.
FAIRHORIZON GREEN
Invest funds that will not be needed for up to 7 years in portfolio module Portfolio 3 or combine modules B15 and O1 in a ratio of 60/40.
FAIRHORIZON YELLOW
Invest funds that will not be used for up to 10 years in portfolio module Portfolio 4 or combine modules B15 and O1 in a ratio of 40/60.
FAIRHORIZON ORANGE & RED
Invest money that will not be needed for more than 10 years in portfolio module Portfolio 6 or our quality equity portfolio Q.
If you are worried whether your portfolio is well equipped for the world after ‘Liberation Day’, just get in touch with us. We‘ll be happy to check for you.
Otherwise, I would be delighted if you could tell your friends and family about Das Family Office so that they can also become part of our community.
With best wishes for a wonderful June!
Yours,
Mario Becker
CEO — [email protected]
Mario founded Das Family Office Pte. Ltd. in June 2017, following an 8-year tenure as Managing Director – Head of Investment Advisory for SE Asia at Standard Chartered Private Bank managing a team of 20 investment advisors and ultra-high net worth assets.
His early passion for investing was fulfilled with over 13 years in senior management roles at Deutsche Bank Private Wealth Management in Asia and Europe, leading global portfolio management products and teams with a focus on strategies for equity and multi asset class portfolios. A native German, Mario speaks fluent Mandarin Chinese and holds a Master’s degree, summa cum laude in Economics, Chinese Culture and Language from the University of Cologne, Germany.
