Q1 2024 Performance

This Q1 my biggest winners were Japan Equities and S&P exposure, where my allocation was 10% and 6% respectively. Biggest loser was on a long JPY short USD partial hedge (although my underlying USD cash position was a net gain here) – this loss doesn’t make sense because didn’t we all know that US rates would be higher for longer? – apparently not looking at the FT graph I put below where rate cute expectations declined since the start of the year – wasn’t it obvious that implied future rates were not in line with core inflation trends though? Regardless the JPY/USD pair now appears more reflective of relative interest rates. Another effect potentially at play is where lower demand to pay fixed (or higher demand to receive fixed – e.g. banks with fixed savings bonds) means fixed rates come down and implied future rates look lower (due to NPV = 0 pricing) meaning the implied rate deviates more strongly from actual expectations.

The Japan equities rally is testament to why a global allocation is so important. Earnings growth has been strong. Wage growth too. Negative rates at the short end were reversed. Thematically Japan presents an interesting play given its population dynamics and its competitive position: company relocations to Japan away from China, among other trends.

US Money market allocations are sizable at this point in time (Dow Jones reporting this near 6$tr in Dec 2023) thinking about where this cash will get deployed is an important consideration, and the recent equity pullback is more an opportunity than problem. 

My strategy going forwards:

· "Some" EU equity exposure: given core inflation is near 2% in France/Germany etc. - EU Rates will come down – mid caps in Germany look cheap

· Reduce cash allocation from 15%: on the back of better entry levels given the market pullback at the start of April

· Rotate out of being overweight sovereign bonds (even if entered at 5.3% YTM) in search of higher returns

· Seek relative value in HY credit (using a weighted average credit spread strategy and exploiting slow ETF repricing - this has worked well in the past for me)

Graphs showing my Q1 and YTM performance vs a comparable index and a comparable ETF. Q1 result looks great although YTD my strategy is seeing volatility. No these are not Bloomberg graphs, they are my own doing in Python.

In other news, after getting through ~3000 pages of the CFAI books I passed CFA level 1 first time with a 90th percentile score, and all subjects above 70th percentile.