Oh No, Financials!

The current event that appears to be unfolding in the financial sector coming out of the private asset space is not the Financial Crisis. Let's get that out of the way. I don't know what the final fallout will be but this will be an investment thing, if anything, not a systemic thing.

We've put up other tables capturing different periods but with the same message. These companies are pretty useful proxies for whatever is going on with private assets and right now, there are some real concerns with private assets but where private equity and private credit don't mark to market everyday, the above companies are like a Wittgenstein's Ruler look at what might really be going on in private asset funds. 

From Joe Weisenthal;

The other day, I talked about how complex the banks are and the complexity is again problematic even if not systemic. Before the financial crisis, I owned one domestic bank and several foreign banks. I had lucky timing selling all but the Canadian bank which I still own for clients today and Barclays which back then owned iShares. I've generally avoided banks ever since save for the one Canadian bank and a discount brokerage now that has some banking activity.

This might be useful.

Blackrock (BLK) is a client holding that of course now owns iShares and does have some exposure to the private asset theme. I would expect it to continue to feel more of the private asset unwind if that is what happens. Clients own a different credit card company than Visa (V). There's no fundamental connection to credit card companies (they don't take credit risk, they collect tolls). RY is a different Canadian bank, down less because I believe the Canadians are generally simpler businesses. KBWB is the ETF that tracks the bank index that Joe mentioned. JPM should be less levered based on Dimon's recent comments but we'll see how that pans out. ICE is the NYSE and a few other business. Panic should be good for trading volumes and exchanges should benefit from that with no fundamental connection to the credit event. Goldman Sachs (GS) is obviously smack in the middle of this thing

I am not zero weight credit risk but relative to the index I am underweight it considerably. If this gets uglier than it already has been, that bit of exposure I do have will feel it. Similar to tech, I've been somewhat underweight, not grossly underweight, but of course if there is a tech route, that exposure will feel it.

The point is completely avoiding something may not be plausible but avoiding the full brunt is plausible. Being underweight obvious risk focal points helps with portfolio robustness as does a little exposure to things that have negative correlations to equity or might actually benefit from the chaos (antifragile). 

And this is why you keep foreign exposure.

It can smooth out the ride over the intermediate and longer term. If you had some edge for when foreign would start to outperform a year or so, great, but that is a tough thing to get right. 

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