Such An Obvious Risk

The markets remembered that tariffs are a bad thing on Wednesday and got hit pretty good. 

The table tells you a lot about what happened today as news broke late yesterday about Nvidia not being able to sell its Hopper chips into China which the company estimates will cost it about $5.5 billion. Anyone overweight tech, which of course worked in 2023 and 2024, really felt it today. Actually they've really been feeling it during this entire market event. 

Something we have talked about before is that bad things happen when a sector grows to be larger than 30% of the S&P 500. It's part of the concentration story that many people warned about over the last couple of years. Before the communications sector was carved out as its own sector, most of those stocks were in the tech sector and the two added together make up about 40% of the index. 

I think I've been transparent about not chasing that heat all the way up to 30% of client portfolios because in terms of mitigating risk, this really is a very easy thing to see and avoid for a portfolio that doesn't just put it all in the S&P 500. Smaller, foreign markets are a different thing. The iShares Singapore ETF (EWS) is 40% financials for example. A US based investor isn't going to anchor around EWS. Even if someone puts 10% in EWS, ok that would count as 4% toward whatever weighting the portfolio has in financials. 

I threw the RR United States Sovereign Wealth Fund ETF into a portfolio on Yahoo a couple of days ago.

Up 1.2% today. GLDM and SH are client holdings.

Last night, a prompt from Twitter sent me down a little rabbit hole, comparing different factors, blended with managed futures in a manner similar to how the ReturnStacked US Equites and Managed Futures (RSST) leverages up with market cap weighting (MCW) and managed futures. 

I used AQR Managed Futures (AQMIX) for the managed futures component and to be clear, each one is leveraged up 100/100. MCW and Quality are far and away the best performers but also the most volatile. All of them got crushed in 2018 versus down about 4.5% for the S&P 500 and all of them were up a lot in 2022 when the index by itself was down 18%. FWIW, just sitting 100% in the S&P 500 compounded at 12.33% for the same study period. 

Putting all your money into a single 100/100 fund is not the intended use, the point was to try to observe whether managed, blended with any other factors would do something useful.  

And last, checking in permanent and permanent-ish portfolio funds. 

I own a few shares of FIRS out of curiosity. It is definitely a quadrant type of portfolio construction but with some Bitcoin thrown in. It hasn't really moved much which for now is probably a good thing. PRPFX of course has been trading forever and with gold and long bonds up today, the lift makes sense. RPAR is risk parity and quadrant-ish too but I am surprised it didn't do better today

Use these bad days and this event to learn more about any fund or strategy that you own or that interests you. This is a fantastic learning opportunity.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.