Now is Then and Then is Now
Most investors need to change their framework in terms of how they think about how to strategically save, invest and build wealth over time. Allocators have experienced the success of 60/40, which was meaningfully supported by an era of disinflation for the last 40 years and then further incentives to buy the highest beta, which was supported by 15 years of the easiest monetary and fiscal policy that has existed in modern finance. The biggest lessons learned from the previous era for how to invest money, which was to invest in 60/40 because bonds were an important diversifying asset, which was also doing well because Interest rates were dropping consistently.
The second change is the conditioning of investors to buy the riskiest stuff because it pays out the best. Investors looked the smartest if they bought the riskiest stuff. As we transition from a world of unbridled monetary stimulation to tighter monetary policy and we transition from a world of structural disinflation to structural inflationary pressures, the lessons learned over the course of the last 20 - 30 years are not going to be applicable. If anything, they will be misguided in terms of how to navigate the next 5, 10 to 20 years. And so what investors have to do is go back and look at scenarios that are closer to the dynamics that we’re seeing today. Dynamics like this give insight into how to protect themselves from an era of structural inflation. For investors and particularly savers but especially long term savers. The thing that is the biggest risk is not that stocks fall 20% but as we move to an era of structural inflation we will see constant erosion of the purchasing power of one’s savings. That combined with the macroeconomic factors that actually cause stocks and bonds to underperform during these dynamics, creates the risk of a huge loss of wealth over a structural time frame.
The biggest thing that investors need to do is to start to figure out how to protect themselves against structural inflation. The vast majority of investors are totally unprepared for structural inflation. They have not been introduced to holding assets like diversified commodities, gold, or elevating their inflation protected cash allocation. Today cash is paying a decent yield buying inflation protected securities, long Term Tips - Treasury Inflation Protected securities, are offering 1% to 2% real yields, immunizing an investor from the resulting inflation while providing optionality. Assets like gold, Tips, diversified commodities, oil and infrastructure heavy businesses, all create protection to elevated inflation. Quite frankly on the invested asset continuum, basically no investors hold any of these assets. Investors will need to start to build a portfolio that is moving in the direction of inflation protected assets and become better prepared for the possible outcome of structurally higher inflation. The question is, what if we do have the inflation problem? And that’s what investors are really unprepared to navigate.
The Opportunity Fund
Our Opportunity Fund focuses on long-term capital growth through differentiated market opportunities. Investing in a broad universe of companies with no benchmark or size constraints delivers a portfolio that seeks to capture strong equity opportunities from across an entire spectrum of listed companies. Our rigorous investment process enables us to assess and value stocks on an objective basis. Drawing on both proprietary tools and inputs from sector-based analysts, our research capability provides detailed insights on equity opportunities.
Our focus on fundamental value offers potential for outperformance. Throughout the market cycle, pricing across equities can be subject to distortions driven by macro factors and investor sentiment. To secure equity opportunities with potential for performance underpinned by true value and sustainable growth, it is important to take a long-term approach that combines a disciplined and resilient investment process with a progressive approach to research through data science and skilled analysis. As a broad cap, index unconstrained strategy, the Opportunity Fund focuses on companies based on their inherent strengths paired with catalyst driven pricing outcomes and market sentiment. Sticking to our process may mean going against the market, but it has become our proven method for delivering positive returns over the long-term with considerable downside protection.
Alterative Indices
In partnership with Ronin Strategies, we constructed the Private Equity Proxy Index seeking an alterative way to get exposure to Private Equity proxy candidates in the public market. More information can be viewed at: https://www.gothematic.com/index/pepx
In partnership with Ronin Strategies, we constructed the Carbon Segment & Exposure Strategy Index as a innovative way to gain exposure to companies in various industries with business segments in the carbon industry and carbon markets while not solely relying on these areas as main revenue drivers. We believe this segment of companies will experience a healthy tailwind over the next decade. More information can be viewed at: https://www.gothematic.com/index/crss
