Astoria’s key message now is this: long duration assets are experiencing a recession while there is a bull market for inflation-sensitive assets. It is our opinion that in the current environment, it would be wise to be globally diversified, own multiple factors, and utilize alternatives. It is important to hedge your inflation risk; CPI is not returning to its former trend-line anytime in the foreseeable future. Regarding the Fed, Astoria thinks there is a high probability that we have seen peak Fed hawkishness and bearish sentiment.
In previous recessions, the average pullback from SPY is 27%. Thus far, SPY has fallen 20%. Historically, there has been a favorable risk-reward for buying stocks during a recession. Stocks are on sale; create a shopping list.
- Too much money has been invested into passive ETFs which distorted valuations.
- The current environment favors actively managed ETFs. We suggest tilting portfolios away from technology, growth, and nominal bonds, given how valuations are no longer viable.
- Active management during a recession makes sense. Active managers can help by tilting towards value with dividend-paying and cash flow-producing entities.
- The conversion of active mutual funds to ETFs could be the ETF story of the year.
- It is safe to expect the arrival of more outcome-oriented ETFs that deliver specific solutions i.e., JEPI which has an 8% yield. The market is already saturated with beta and thematic ETF products.
Please note that Astoria Portfolio Advisors serves as a subadvisor to the AXS Astoria Inflation Sensitive ETF. Readers should consult their financial advisor to determine if PPI is a suitable investment for their portfolio. For more information on PPI, please click here.
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