Vincent Deluard revealed his wallet. Three investments for 2023
After a period of exceptionally lenient monetary policy, the Federal Reserve began to aggressively raise interest rates to curb consumer demand and trigger an economic slowdown.
According to Deluard, the investment strategy should be quite simple these days: allocate money to market sectors that benefit from and protect against these risks.
For him, this means only investing in three sectors – one sector for each risk.
– I call it Holy Trinity Portfolio, which this year is up 5 percent. This year, when almost everything is falling down. The 60/40 portfolio drops by more than 20 percent, and it is an equity portfolio in its entirety, he said in Mauldin Economics.
To fight rising interest rates, Deluard likes finance companies.
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– There is one sector that is benefiting from rising rates: finance. You saw it in the results of JPMorgan, Bank of America. It is not that difficult. You get people deposits, you pay zero, and then you get an interest rate on excess reserves, which is usually 5%. You really have to be a fool not to earn money this way – He said.
Depending on what economic data like unemployment and consumer spending look like, the Fed is likely to continue raising interest rates until the end of 2022 and early 2023. The central bank has announced that it intends to continue its policy until inflation stops. will fall. The inflation target is 2%.
Some expect the Fed to return to a lenient policy in early 2023. Deluard expects it to be in May, though such a move will be unjustified given the forecasts of still high inflation.
To hedge against the risk of a recession, Deluard enjoys healthcare because of its defensive nature.
– Healthcare is not really subject to rate increases, it has a lot of price power. Historically, the healthcare sector CPI exceeds inflation and the economy by about 2%. It’s a very good balance sheet, a very defensive profile. So healthcare is doing best if we are indeed in a recession, he says.
There are various forecasts of recession on Wall Street. Some economists estimate the chances of a recession at 50 percent, and some famous investors say it is inevitable.
The iShares US Healthcare ETF (IYH) provides exposure to healthcare equities.
Deluard likes the energy sector as a hedge against inflation risks.
– When there are inflation surprises, every sector goes down, energy goes up – He said.
Inflation remains higher than expected and is at the highest level in four decades in the US. Deluard expects it to drop slightly by the end of 2002, which means that The Fed will likely have to continue rate hikes until 2023.
The Energy Select Sector SPDR Fund (XLE) offers exposure to energy equities.
Deluard stressed that he liked the sectors listed as they are usually cheap compared to the rest of the market. For example, bank stocks have a price to earnings ratio of around 8-9x, while healthcare has a ratio of 12-13x and energy is 6x. By comparison, the S&P 500’s price to earnings ratio is around 20x.
Businessinsider.com. Translation: Mateusz Albin
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