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Get Think Tanked Distilled with John Davi

With inflation potentially nearing a peak, the Fed continuing to raise interest rates, recession risks rising, and a stock market acting like the good times are back, investors have a lot to process today. John Davi, the CEO and CIO of Astoria Portfolio Advisors, which oversees $1.3 billion in assets, uses a macro-based quantitative approach to navigating the market. He joins the ETF Think Tank to offer his thoughts on the current environment.

Davi says that he’s currently taking the view of where we are in the economic, earnings, and inflation cycles. His firm thought the Fed would step in and stimulus would be injected into the system, so they were looking to hedge against a big earnings and inflation cycle early on. While maintaining a long-term strategic perspective, he tilted towards value and added inflation hedges. That theme has largely played out, but now he feels investors should start nibbling again with stocks and credit. October could be a turning point.

On the fixed income side, Davi says his company is generally underweight bonds and focused on quality. He feels the bond market priced in the rate hike cycle earlier this year, but now could be an interesting time to dip your toes back in. He notes that he’s staying away from MBS based on the Fed pulling back, but munis are starting to look.

Davi says that in the portfolio construction process, he prefers stocks over bonds because they tend to perform better over time but uses fixed income for volatility management. He likes dividend stocks and thinks they’re a “no brainer” if you can get them at a P/E of 14. He also says that international stocks at 10-13 multiple and emerging markets at 8-10 are opportunities you don’t see come around very often.

Davi uses liquid alternatives as part of his portfolio strategy, but likes them as portfolio insurance. He generally targets 15-20% exposure, but focuses on products with low to negative correlation to stocks and aren’t terribly expensive. Some people say REITs or high yield bonds are insurance, but those have significant downside. Astoria uses some long/short strategies and inflation strategies. They’ve used merger arbitrage, gold and gold equities in the past. In general, he likes to try to lose less on the way down.

Over the past year, Astoria hasn’t done much trading because they built this year’s portfolio last year. It hedged for the anticipated rotation and inflation themes, but has selectively been adding some investment-grade credit and dividend strategies. Davi says the company owned more cash than usual recently but didn’t want to own excessive amounts because it loses its purchasing power over time. He has started extending duration a little bit and has used Treasury bond ladders to enhance yield. They generally don’t make big moves, such as cash straight into stocks, and prefer to make smaller adjustments periodically.

Other key takeaways:

  • Earnings could decline 20% if we see a bad recession. Davi believes it will be a mild one because companies have improved balance sheets and the labor market is tight.
  • Taxes matter a lot for investors and Astoria does do some tax loss harvesting. This is a year where you’re starting to see a lot of that and it could be more important to do it throughout the year. If we rally into the end of the year, you could lose the opportunity to take those losses.
  • The profit cycle may be deteriorating. In a multi-asset portfolio, it’s good to have a lot of factors. He likes quality because it generally works. The market is telling us there is some trouble in value, but it’s also cheap.
  • Davi isn’t a big fan of the new single stock ETFs. They’re tougher to use unless you’re a day trader and long-term portfolios don’t need it.
  • The Fed needed to make a “dovish hike” recently because they put so much pressure early on. In Davi’s opinion, the Fed pivoted because they said some indicators were turning. Now, they don’t need to press as hard. He expects them to front load a 50 basis point hike in the fall and then maybe pause.
Disclosure

All investments involve risk, including possible loss of principal.

The material provided here is for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

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ETF Industry KPI – 8/16/2022

Week of August 8, 2022 KPI Summary This week, the industry experienced 16 ETF

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Get Think Tanked with John Davi

Get Think Tanked with John Davi

With inflation potentially nearing a peak, the Fed continuing to raise interest

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