AugurMax Asset Allocation Changes 2024-12-31
Equity exposure was raised somewhat after stock returns in December underperformed all other assets except currencies. Stocks remain the largest broad asset class and re-allocations at 2024-12-31 brought them well above their longer term average weighting. Bond exposures rose modestly and are more or less in line with their long-term average weighting. The prescribed Currency exposure plummeted and now represents a short. This negative Currency exposure suggests that the dollar will continue its rise versus foreign currencies. Commodity exposure was added to and Commodities are now well above their longer term average weighting.
Five regions experienced equity cutbacks with Australia and US Large Caps taking the brunt. Stock exposures in three equity regions were raised: the UK, Euroland, and Japan. The VIX exposure was pushed down slightly and its negative weight indirectly implies an increase in equity exposure. Interest sensitive US REITs were left alone.
Bond exposures were raised primarily in Emerging Markets, Japan, and in the Euroland. UK Gilts and Tips were cut the most. Cash exposure was unchanged.
Within Commodities, NatGas, Oil, and Corn were bumped up while Gold exposure dropped.
Currencies have performed poorly recently and have NOT benefited from FED cuts or the Trump2 victory. A higher dollar makes foreign goods cheaper so any potential tariffs after the inauguration would be offset partially by a higher dollar. The Mexican Peso was added to the most while exposures to the GB Pound and the Yen were cut dramatically. Excepting the Mexican Peso bet, the risks within the broad currency exposure are balanced.
Domestic Stock returns were weak in December as election fervor subsided. Ultimately, interest-sensitive sectors like Utilities and Real Estate as well as cyclicals like Materials and Industrials were spurned in favor of higher growth stocks in Consumer Discretionary and Technology. Bonds were down in every sub-region that we track around the globe. US Tips beat US Treasuries hinting at higher inflation fears (see breakeven inflation rates). US Large Caps are now 70% above their October 2022 lows (see worst drawdowns) with December’s drop hurting that recovery. The prescribed changes are largely influenced by our ECO methodology. Performance results (on a stand-alone basis) for assets like Gold and others using our ECO metrics are shown here.
