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Portfolio Construction Thoughts As We Head Into 2021

Dec. 28, 2020 12:07 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Photo Source: https://www.lesfinances.ca/

I hope you and your families are safe and healthy and have a great holiday season.

I wanted to send a few portfolio construction thoughts as we finish 2020, as well as two recent interviews Astoria participated in.

We have been asked by advisors which of Astoria’s solutions is uniquely positioned in the next 12-18 months. On a relative basis, we believe our Cyclical Portfolio (which has a lot of value-oriented companies) is uniquely positioned (relative to our other solutions) as the economy continues to normalize in 2021. The research shows that as corporate earnings inflect higher, investors have historically rotated away from growth and into cyclically oriented value names.

Moreover, Cyclicals are undervalued compared to Growth and High-Quality stocks (as well as compared to the broader US large cap market). There is a lot of historical data showing that cyclicals have done well coming out of recessions when the economy hits full stride. This is not necessarily a long-term strategic allocation but one that investors can tilt over the next 12-18 months. We have historical backtests that demonstrate the historical performance of Cyclicals when the economy is in its early stages.

Second, given that we are concerned about the rise of inflation we put together an Inflation Sensitive ETF portfolio (contains over 10 ETFs across the commodity equity, physical commodity, TIPs, etc.). We are not suggesting putting all of a client’s asset allocation in this basket but a 5-7% satellite tilt for a Multi-Asset portfolio makes sense to us. COPX (Copper Miners), XME (US Metals & Mining), and PICK (Global Metals & Mining) are up over 100% since the March 2020 lows. Between the rise in M1 money, the increase in commodity equities, and the relative outperformance of TIPs vs. nominal bonds, we believe the market is pricing in higher inflation for 2021. See recent interview we did with S&P Global regarding our views on inflation.

Lastly, Astoria was featured in Citywire magazine discussing our portfolio construction process. This is a magazine layout so you will need to click the right arrow and scroll to the button to see our section of the interview (you will need to continue clicking the right bottom arrow). There are several large organizations who were also interviewed so we feel quite honored to be part of Citywire’s eco-system. Click here.

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Best, Astoria Portfolio Advisors

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