The latest JP Morgan strategy update shows a slight change to their overall outlook. They are beginning to diversify out of the reflation trade as it becomes “crowded”:
- Portfolio strategy: The recovery trade is becoming consensus and will lose its power to drive markets at some point. We thus diversify through eight new investment themes for the coming year. In aggregate, they are long equities and credit, and short USD.
- Economics: The foundations of the recovery are in place, even though there are clearly risks.
- Fixed Income: Range trading—focus on carry and spreads.
- Equities: Financials should benefit most from 3Q reporting season. Be long outright and versus other sectors.
- Credit: We stay overweight US HG given the exceptionally strong demand.
- FX: No urgency to exit the dollar short.
- Alternatives: Stay short oil. Be long agricultural products, particularly sugar and cocoa.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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