This post was just published on ZYX Global Multi Asset Allocation Alert.
The stock market in the United States is throwing a tantrum. Let us examine stock market’s concerns and how our model portfolios are positioned.
Euro Is Falling
The best way to profit from the falling euro is short the currency and long European equities. There is a 12% allocation to HEDJ. This ETF represents European stocks and is hedged against currency fall. There is also a 8% position in EUFN which represents European financial institutions. Further there is a 5% allocation to PSP which represents private equity. Private equity is on the hunt for bargains in Europe.
Yen Is Weakening
The best way to profit from weakening yen is to be short the currency and be in currency hedged Japanese equities. There is a 5% allocation to HEWJ and 3% allocation to DXJS, both represent currency hedged Japanese equities. There is also a position in YCS which represents leveraged short yen.
Interest Rates Are Rising
There is a 6% allocation to TBF which represents an inverse ETF that goes up when interest rates go up. There is a 5% allocation to KBE and a 5% allocation to KRE. These are bank ETFs which benefit from rising interest rates. There is also a 8% allocation to VVR in the Lower Risk Portfolio. This closed end fund represents floating rate senior bank loans. Since the interest rates are floating, typically with about 90 days lag, they adjust to higher interest rates.
Some Emerging Markets Are Being Crushed
There is a 5% allocation to EUM. This is an inverse ETF that goes up when emerging markets go down.
Deflation Is Coming
There is a 3% allocation to ZSL in the Low Risk Portfolio and 2% in the Lower Risk Portfolio. ZSL is a leveraged ETF that goes up when silver falls. If deflation is coming, silver has a long way to go down.
Global Growth Is Slowing
The portfolios contain a number of ETFs that are on their own growth trajectories and are somewhat insulated from global growth. These ETFs include CSD, IBB, KWEB, PKW, QLD and SMH.
What To Do Now?
Both model portfolios are positioned correctly for prevailing market conditions. Consider continuing to hold the present positions. Also consider initiating or adding when various ETFs dip into the buy zones specified in the model portfolios.
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