Monthly Asset Allocation Analysis: Opportunities and Strategies in 2023

Tactical asset allocation has been updated here. 

Stocks / Bonds

The Swiss stock market is becoming more and more problematic, with a trend that is starting to become frankly negative. In fact, over the past year, the Swiss SPI index has lost 1,22%, while its American counterpart the S&P 500 has gained 11,36%. If we take into account the exchange rate effect, it is even worse since the dollar has strengthened against the CHF by 2,14% during the same period. In total, this gives us a difference in profitability of 14,72%, just over one year. This is huge for two indices of developed countries. If only it went hand in hand with a more attractive valuation, but on the contrary the Swiss market is still very expensive overall. It is therefore time to clearly reduce your positions in Swiss stocks if you still have some or to move cash to the ETF.

Does this mean that we should throw ourselves into American stocks? No, not at all, because on the other side of the Atlantic, even if the market continues to follow a strongly positive trend, stocks are really overpriced, even a little more than in Switzerland. So we continue to lighten up, especially expensive stocks or we spend cash on the ETF.

The European market is still correct from a valuation point of view, but it is starting to follow a slightly negative trend again. So we are reducing our positions again, especially those that are falling, or we are spending cash on the ETF. In Canada, the market is recovering a little, but it is still quite expensive. So we are investing sparingly, focusing on low-valued stocks. Or we are buying the ETF. In Japan, stocks are cheap and following a good positive trend. So we are buying stocks or the ETF. Finally, for emerging countries, it is the same as for Japan, but with a less clear positive trend. We remain invested in the ETF, at 6%.

In total, this gives us a still strong allocation to equities, of the order of 74%. This strong weighting in equities is explained by the still excessive overvaluation of long-term bonds (the 10-year yield on confederation bonds has returned to negative territory). Despite a slightly positive trend again in long-term bonds, the position therefore remains cash, with a zero target allocation.

Real assets

Gold is still very cheap (in historical comparison to stocks) and is following a slightly positive trend. The position remains invested with a target allocation of 6%. A little gold helps to smooth out the hard knocks slightly because it is not correlated to any other asset. It constitutes a kind of war reserve, an asset that plays a buffer role compared to other investments and that allows to buy back assets after they have depreciated. However, gold does not bring in distributions, which is why the tactical allocation is quite low.

Regarding real estate, we are sticking to a permanent allocation, with a fairly large target allocation, of the order of 15%, given the persistent weakness of interest rates.

Alternative strategies

I have noticed for a few weeks that my long/short strategies are working quite well again, thanks to an increase in volatility. For those who are invested in an ETF like FTLS, however, it still does not work miracles, even if its performance remains correct. I am still thinking about how I can make you benefit from my long/short strategies again in the future, as I did at the time with the Trading Auto Signal. However, I would need to be able to be connected to my site every trading day, which is not possible at the moment. For now...

My leverage strategy remains cash and this will continue to be the case for a very long time, given the still scandalous level prevailing on the US stock market.