Rate Hike Volatility: Winter Comes in June for Crypto
22 June 2022
The S&P 500 was flat in May but at the time of writing is down 5.8% in June and -22.9% ytd. Most financial assets are down negative double digits ytd: Nasdaq -31%, 10-year US Treasuries -15%, and Bitcoin -56%.
The growing volatility and uncertainty in the financial markets globally is being driven in large part by the overdue and somewhat chaotic reaction of Central Banks to persistent inflation. The US Fed hiked rates by 75 bps in June - the largest hike in 27 years. The 10-year US real yields soared 150 bps in 60 days and most other bond markets suffered - the Australian 10-year yield rose 57 bps in 2 days.
The persistent inflation, made worse by supply chain problems from lockdowns in China and war in the Ukraine, is starting to bite consumer spending and reduce economic growth around the world. In Europe, the 80% rise in the price of natural gas is one problem; the 50% reduction in deliveries by Russia is a worse problem. Europe may not be able to buy all the gas they need for next winter at any price.
Investors fearing more volatility may want to raise cash to be "safe". But if cash buys 8% fewer goods and services next year compared to this year, too much cash may not be safe. A well-managed Life Settlements strategy can contribute to investors' portfolios in these turbulent times: it will be non-correlated with the equity and bond market turmoil, and it offers a return that has a strong probability of keeping up with inflation.
PORTFOLIO CONSTRUCTION: THE ROLE OF LIFE SETTLEMENTS - The Role of the Laureola Fund in Portfolios of Private Clients and Family Offices
Last month we discussed the role of LS in institutional portfolios showing that, mathematically, a small allocation to LS could both reduce portfolio volatility (risk) and increase returns over most 5-year periods because of its diversification characteristics, even if single digits returns are assumed.
But there are other definitions of investment risk sometimes used by Private Clients and Family Offices. Some are simple and straightforward, but still very useful in analysis - maybe even more useful. Many strategies that promise diversification in bull markets fail to deliver the needed diversification in bear markets. But the Laureola Fund does.
The Fund has outperformed all asset classes (except for commodities) ytd in 2022 including hedge funds as measured by the Barclay HF index (-5.7% ytd). The Fund has delivered positive returns in 7 of the 10 worst months for the S&P since inception, and in 2 of the 3 months when both had negative returns the negative return of the Fund was insignificant. The Fund has helped investors keep up with inflation delivering 6.7% net over the past 3 years.
For once the theory and the practice align: The Laureola Fund can make a positive contribution to investors' portfolios in turbulent times no matter what analysis is used.
Funds operated by this manager: