A Pause before J-Hole?

Macro Perspectives

We had, market wise, what turned out to be a pretty dull day. It’s all about Jackson Hole - Reassessing the Constraints on the Economy and Policy - and it’ll gives us a clue about how central banks now see their new world.

I’d like to use today’s note to, humbly, discuss a key part of The Gryning | Portfolio.

Uncorrelated Convexity Portfolio - Long Term Compound Growth.

The inspiration for the portfolio comes from a paper I read some years ago by Cliff Asness at AQR - Virtue Is its Own Reward: Or, One Man’s Ceiling Is Another Man’s Floor, 2017.

“What happens when one group of investors, call them the virtuous, simply won’t own a segment of the market (the sin stocks)? Well, in economist terms the market still has to “clear.” In English, everything still gets owned by someone . . . if the virtuous decide they won’t own something, the sinners then have to, and they have to be induced to through getting a higher expected return than otherwise. This in turn is achieved through a lower than otherwise price.”

Put simply, if the virtuous are not raising the cost of capital to sinful projects, what are they doing? If the discount rate used by sinful companies isn’t higher as a result of constraints on holding sinful stocks then there was no impact. And, if the discount rate on sin is now higher, the sinful investors make more going forward than otherwise.

So I went out seeking these “sinful” companies, eventually settling on a portfolio that was likely to benefit from the following broad market themes;

• Political landscape shifts.

• Mean reversion from Growth to Value.

• Overall a more defensive market.

• Investors shifting towards “barbell” strategies for portfolio balance.

The result, shown below, better risk-adjusted returns and higher expected returns over time.

My offer stands - subscribe for a year and you’ll get the allocations & weightings for the above portfolio whilst saving $999.99.