If you were to ask family office investment professionals to describe the markets in 2023 in one word, many would probably choose “confusing”. It hasn’t been as outright bad as 2022, but it has hardly been enjoyable. Bonds are down again, while almost all equity gains are due to virtually a handful of “big tech” US stocks. Anyway, stocks are up while bonds are down: The US economy must be doing great, right? Well, surprise: it is on the brink of “the most anticipated recession ever”!
The positive stock-bond correlation has vast implications for portfolios. Unlike the previous 30 years, the fixed income part of the portfolio does not currently fulfill its role as a portfolio diversifier and stabilizer. Moreover, the most widespread alternative diversifier, real estate, also looks problematic. Will the confusion come to an end in 2024?
BONDS FOR 2024 BEST ASSET CLASS
We cannot imagine a world where bonds finish 2024 with returns below 7%+. Our reasoning goes as follows:
1) Major central banks are about to stop hiking interest rates (with Japan being an exception). It means that prices of sovereign bonds, such as US Treasuries, will stop falling. The US election year may give the Fed additional incentives to turn “dovish”.
2) Bonds are once again yielding more than inflation.
It means investors receive decent compensation for inflation risk.
3) Still a decent probability of a US recession in 2024. In this scenario, credit spreads widen by 200-300 bps and corporate bonds will be at extremely attractive levels. Our LEON Income Fund RAIF will be able to lock in a 12% yield in high-yield corporate bonds.
ARBITRAGE HEDGE FUNDS FOR 2024 BEST DIVERSIFIER
What asset class can be a risk diversifier besides bonds? We firmly believe that uncorrelated hedge funds should be a core part of the Alternatives allocation of any well-constructed portfolio now. The LEON Global Hedge Fund RAIF is aiming to offer just that allocation prepackaged and ready for inclusion in any equity portfolio. Studies show that adding uncorrelated, high-return, high-risk components to a portfolio improves returns while maintaining the same amount of risk taken. This is particularly true when there is no clear trend in equity markets, which we believe will be the case in 2024.
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Michael Borisov, CFA |
Artem Kalinin, CFA |
Tel.: +357 25 268 120
e-mail: Этот адрес электронной почты защищён от спам-ботов. У вас должен быть включен JavaScript для просмотра.
Address: 37, Theklas Lisioti,
Gemini House, Office 301,
CY-3030, Limassol, Cyprus
www.leoninvestments.com.cy
