Investment Committee – October 2022


Embrace alternatives to generate income

Divergence of policies supports the dollar

During the firm’s investment committee meeting for October, members agreed that the biggest moves in markets tend to take place when fiscal policies between the US and the other major trading blocs diverge. The committee believes this is precisely the setup today. A fundamental problem identified is the divergence of policies between the EU and US economic blocs. The US faces persistent overheating, and the Fed may have to raise interest rates further than it or the market expects. The European (and UK) response to the energy (and food?) crisis is massive fiscal intervention; consumer subsidies, public-funded investment, and monetary accommodation. Given that these policies are in opposition to those of the Fed, the risk is that the EUR and GBP may be victims of an increasingly powerful US$.

An inverted yield curve offers little confidence

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Equally important but more technical, the yield spread between the 10-year and 2-year US Treasury bonds remains negative which is a consistent recessionary signal. We will need a material steepening in this curve to feel more comfortable going forward.

Unicorn update

The flagship offering — the systematic investment scheme: Unicorn — has also been under optimization development recently, and the committee discussed how new allocations are allotted; the inclusion of individual value stock names; ideal leverage; and how risk-parity tactics may complete the strategy. More information can be found on the firm’s website (clients only).

In Summary

The committee remains cautious going forward and suggests investors should choose a diversified mix of yield-generating investments and avoid cash. In addition, one should seek to diversify via alternative investments like absolute-return funds offered through KM Cube’s platform.