Investment Committee – October 2023
Negative Carry and Negative Trend
The Investment Committee convened in October 2023 to discuss the current market conditions and their implications on our investment strategies. The Committee’s discussions were centered around the following key areas:
Understanding Positive Carry and Positive Trend
In investment terms, carry refers to the aggregate flows of holding on an investment after adjusting for the opportunity or financing cost. Positive carry occurs when the income flows of an investment exceed the cost of financing it. For example, if you borrow money at a low-interest rate to invest in an asset that provides a higher return (ie long-term bond), you’re experiencing positive carry.
A positive trend refers to an upward direction in the market or the price of an asset. When an asset is in a positive trend, its price is expected to increase over time.
The combination of positive carry and upward positive trend is often considered a profitable long-term investment strategy. This is because the investor not only earns a return on the investment that exceeds the cost of financing it but also benefits from the appreciation in the value of the asset over time.
Market Risks and Portfolio Strategy
Given the negative carry and negative trend in most assets, the Committee suggested that the safest place to be is in the shortest duration assets such as short-term bonds, t-bills and, of course, cash. While the recent sell-off may mark a short rebound, the Committee proposed that for the mid- and longer-term horizon we remain hesitant against a significant rally in stocks and bonds before data (chiefly from the US) come out better-than-expected, particularly from the inflation front.
MarketSenseAI: Exploiting Artificial Intelligence in Stock Picking
The Committee was joined by Mr. Fatouros, a Ph.D. candidate at the University of Piraeus, who presented MarketSenseAI, a novel approach to stock picking using a well-defined LLM process in decision making. The Committee expressed interest in incorporating this system into our quantitative offerings, such as the Unicorn and Navigator models.
Summary
The Committee remains committed to monitoring these developments and adjusting its recommendations as necessary. The detailed changes in the model weights for October 2023 can be found in separate articles.
Authors: John Couletsis and Kostas Metaxas