All posts in category: Momentum vs mean reversion (4)

Time for the Beach

Monday, August 19th, 2024

What have we learned from 2024 so far

Lesson one, fixed income is not offering many clear signals. There is no sustained relative momentum anywhere along the US Treasury curve. Investment Grade and EM Bonds are not adding to returns or diversifying risk. High Yield continues to do both, which is lesson two. Three, we still like the Technology-related sectors in US equities, but not as much as previously and we are much more selective within them. Four, Japanese equities are uninvestible until we know who the new Prime Minster is and maybe not even then. Five, we are already defensive in our Eurozone equity models and becoming more so in our bond model, all of which is consistent with a rising threat of recession. Six, the UK is our preferred equity region, with its recommended weight approaching a 20-year high. There is a chance it may escape from 25 years of underperformance.

Filed under: Categories: , , , , , , , , ,
Synopses can be downloaded by subscribers holding a Harlyn All Access Pass
PURCHASE ALL ACCESS PASS
Already hold an All Access Pass? LOG IN

Currency, Currency, Currency

Friday, September 2nd, 2022

Euro and sterling FX markets could become disorderly.

Nobody likes to consider the prospect of a currency crisis, but we think this is getting more likely by the day. We have long thought that the hiking cycle in the US would cause at least one major asset class to come unstuck.  When we wrote the original note, we didn’t think it would be European currencies, but this is what the price action now suggests. Both sterling and euro have broken down out of previous trading ranges and both could test historic lows if the FX markets become prisoners of their own momentum, as sometimes happens. European investors need to own as many natural hedges as they can – US issuers in credit and dollar earners in equities.

Filed under: Categories: , , ,
Synopses can be downloaded by subscribers holding a Harlyn All Access Pass
PURCHASE ALL ACCESS PASS
Already hold an All Access Pass? LOG IN

Approaching a Turn in USD

Friday, December 10th, 2021

The consensus for a strong dollar is more fragile than it appears

Our asset allocation models have been significantly dislocated by the strength of the US dollar. Our previous note – Currency First Is Second Best – showed that we had a model for working round the problem, even if it was difficult to know when to use it. This note introduces our G7 currency model, which we have been live-running for about two years. We don’t use it to make trade recommendations because we think the risk-adjusted returns are normally unattractive compared to those in other models, but it is occasionally useful in times of extreme market stress. The model itself is based on a mean-reversion approach and it is now close to its largest underweight position in USD over the last two years. This time last year, it was close to a two-year maximum overweight, when the consensus view was the dollar would be weak in 2021. If we were forced to commit capital, we would position for a weaker USD, but we think the right time to do this is January, not December.

Filed under: Categories: , ,
Synopses can be downloaded by subscribers holding a Harlyn All Access Pass
PURCHASE ALL ACCESS PASS
Already hold an All Access Pass? LOG IN

If You Have to Own Bonds…

Wednesday, January 24th, 2018

This is how to trade them

All our tactical asset allocation models are close to maximum underweight in fixed income. If you have to have some exposure, our models are clear that the best overall strategy is momentum with a bias towards risk-aversion. Other strategies tend to lead to lower returns and larger drawdowns over the long term.

Filed under: Categories: , ,
Synopses can be downloaded by subscribers holding a Harlyn All Access Pass
PURCHASE ALL ACCESS PASS
Already hold an All Access Pass? LOG IN