2024 has marked a pivot of financial circumstances that buyers should take into account.
Over the previous two years, we noticed rampant inflation, speedy fee hikes, destructive actual charges, an earnings recession, tight company stability sheets as wages elevated and a recession that by no means manifested.
What has modified? We observe extra sturdy financial development, constructive actual charges, potential fee cuts and a possible shift in market management.
These two environments require two very totally different portfolios. Astoria is now extra constructive to begin 2024 than we’ve been within the final couple of years. We entered this yr chubby equities, notably U.S. equities. We proceed to lean on high quality (QUAL, DGRW, and so forth.).
We consider market broadening will proceed and finally grow to be extra sturdy. Astoria holds that managing threat by diversifying away from extremely concentrated passive funds is prudent. This doesn’t imply we don’t personal them; nevertheless, the focus continues to develop, which considerations us. We diversified threat in our portfolios by allocating 1/3 to equal-weight, 1/3 to market-cap-weight, and 1/3 to quant/sensible beta.
Internationally, we’re constructive on Japan. We see sturdy earnings revisions, excessive development estimates, sturdy worth momentum, low cost relative valuations, engaging EPS development, GDP development potential, and improved company funds. DXJ is an ETF that expresses this view.
Relating to fastened revenue this yr, we’re barbelling corporates, munis, and Treasurys. Astoria is impartial on period vs. the benchmark. We’ve additionally begun buying MBS (SPMB). We’ve diminished our publicity to negatively correlated options like BTAL. We proceed to make use of our rate-sensitive / actual belongings technique and gold (GLDM) in our portfolios.
High ETF Picks:
- DXJ: Robust earnings revisions and worth momentum, excessive development estimates, and engaging valuation.
- QGRO: It has carried out impressively with out taking excessive focus threat within the Magazine 7. The most important holding is Reserving Holdings (3.09%). Solely 3 Magazine 7 shares in its high 10 holdings make up 8.09% (As of March 11, 2024)
- SPMB: Company MBS have increased spreads than corporates, their YTM is engaging, and prepayment threat is low.
Astoria’s Excessive High quality Technique
Together with our high funding picks of 2024 is our Excessive High quality US inventory technique. Since 2020, we’ve utilized this technique. The technique quantitatively selects the best high quality shares inside every sector, utilizing sector-specific high quality metrics. It’s equally weighted and sector-optimized to the broad giant/mid-cap US market. This is a vital level as a result of a broad market equal-weight index just like the S&P 500 equal-weight assigns equal weight to all shares, ending up with ~16% expertise publicity. Astoria’s high quality technique, however, using sector optimization, has ~31% expertise publicity (As of March 11, 2024).
Why is it equal weight? Over time, SPXEW has outperformed SPX (market-cap-weighted). Since 1999, SPXEW has outperformed SPX by 310% cumulative returns and 1.96% annualized returns. See chart beneath.
Why high quality? Analysis exhibits that the standard issue has a better return/threat over time than different components.
Astoria is a strategic investor. We use the equal-weight high quality technique as a long-term portfolio allocation. It enhances our development allocation and diversifies our market-cap-weighted core fairness positions..
Astoria’s View on ETF Tendencies
Bitcoin is drawing all of the headlines. We’re constructive on the asset class however should watch for a pullback earlier than it enters our options allocation.
We consider equal weight is a vital diversifier. As talked about, we’re implementing it with market-cap-weighted and quant/smart-beta (1/3 every).
Company spreads are very tight, and front-end charges stay stubbornly excessive; this should change earlier than droves go away cash markets and T-Payments.
Fastened revenue has taken in huge inflows YTD. That is unusual since AGG is down 0.51% and SPY is up 7.57%, as of March 11, 2024.
Broader inflows into equities are reliant on financial knowledge and Fed choices. We’ve acquired quite a lot of inquiries about small caps and worth. We would wish to see fee cuts earlier than allocating to smaller caps in our portfolios.
If financial energy continues, it will invariably preserve charges the place they’re; worth, small-caps, and overwriting will battle whereas high quality, development, and market-cap-weight will stay engaging. QUAL noticed important inflows in 2023, returning 30.88% within the calendar yr and +10.80% YTD as of March 11, 2024.
China’s deflation points will trigger DM exporter-driven international locations to undergo. We count on US inflows to proceed.
The ‘12 months of the EM’ was forecasted, going into 2024, however it’s but to be seen. YTD via March 11, 2024, KWEB -4.81% and EEM +1.74%. Astoria believes EM will proceed to battle if the greenback strengthens and charges are held.
John Davi, CEO & Founder at Astoria Portfolio Advisors, might be talking at Wealth Management EDGE. Be part of John together with 2,000 attendees and senior leaders now.