A new paradigm

Investing in the current environment is becoming challenging. If you apply pure rational analytics, perhaps you should have a big portion of your portfolio in cash (for instance like Warren Buffett), but if you look at equity indices, we have regained all time highs. Also, inflation is picking up, so perhaps cash is not ideal when it comes to a long term investing plan. In the charts below, you can see that, using the S&P500 as a whole, the case is not compelling: CAPE Schiller P/E is above 40, and the dividend yield is currently at 150 year low. Bonds don’t offer a very attractive case either. IG and HY yields are atractive enough to keep chips on the table, but they are not cheap. Spreads are near historic lows. Commodities and EM markets offer an attractive story, but are developed markets advisors and investors prepared psychologically to build portfolios with those assets as core holdings? How do you adjust your traditional 60/40 to this market? Should you adjust it at all or stay the course? Both commodities and EM have been out of favor for a while, and there seems to be a lot of doubts when it comes to meaningfully add exposure to portfolios, because they have been a source of volatility in the past. But what if they are the safe haven these days? We’re entering into a new investing paradigm.

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