Anastasia Amoroso, Chief Investment Strategist at iCapital discusses the current economic environment, the performance of the 6040 portfolio, and the importance of diversification. She also reflects on the progress and challenges of women's empowerment in the finance industry.
Consumers and corporations are less sensitive to interest rate increases than in the past, suggesting higher rates may not derail the case for risk assets like stocks.
Valuation, positioning, and catalysts should be considered when evaluating investment opportunities.
Traditional 60-40 portfolios may require alternative investments like hedge funds to enhance performance and protect against market downturns.
Deep dives
Understanding the Current State of Affairs and the Importance of Valuation, Positioning, and Catalysts
The podcast episode explores the current state of affairs in the financial markets, including high interest rates, correlated moves in stock and bond prices, and resilient economic growth. The speaker emphasizes the importance of considering valuation, positioning, and catalysts when evaluating investment opportunities. It is highlighted that consumers and corporations are less sensitive to interest rate increases than in the past, and higher rates should not necessarily derail the case for risk assets like stocks. The tech sector is mentioned as an area with favorable earnings revisions and strong earnings growth.
The Significance of Diversification and the Performance of Traditional Portfolios
The podcast delves into the importance of diversification and the challenges faced by traditional 60-40 portfolios. Exposure to global macro hedge funds is highlighted as a strategy that delivered a 9% return in 2022, while both the stock and bond market saw losses. The conversation emphasizes the need for diversification beyond the traditional portfolio allocation and suggests considering alternative investments like hedge funds to protect against market downturns and enhance portfolio performance.
The State of Female Careers in Financial Services
Towards the end of the episode, the discussion shifts to the state of female careers in financial services. While progress has been made in terms of inclusivity and representation of women in leadership roles, there is still a gap in the middle between junior and senior roles. The unique demands on women, such as family responsibilities, may contribute to this gap. The importance of creating a more flexible work environment and providing a better work-life balance is emphasized as part of the solution to address this issue.
Examining the Impact of Interest Rates on Consumers and Corporates
The podcast explores the relationship between interest rates and consumers and corporations. It is highlighted that consumers are less sensitive to interest rate increases compared to the pre-financial crisis era, as a smaller percentage of consumer debt is floating rate. The impact of interest rate hikes on corporates is also discussed, with emphasis on the favorable interest coverage ratios and net debt to EBITDA ratios for many US corporates. While certain areas like leveraged loans and private credit may face challenges, the overall impact of higher rates on corporates is deemed less concerning. This suggests that higher rates should not significantly derail the case for risk assets.
The Role of Alternatives in Portfolio Allocation
The podcast highlights the importance of considering alternative investments in portfolio allocation. It is explained that traditional 60-40 portfolios may not provide sufficient diversification and returns in the current market environment. The episode suggests adding alternative investments, such as private equity, private credit, and structured investments, to enhance portfolio performance, increase income, and ensure diversification benefits. The focus is on expanding access to alternatives for private wealth clients and improving technology platforms to streamline the investment process.
As Chief Investment Strategist at iCapital, a global alternatives platform, Anastasia Amoroso is responsible for helping the firm’s clients understand changes in the macro regime and how capital should be allocated in response. We start our discussion by considering the current state of affairs – of high interest rates, of correlated moves in stock and bond prices and resilient economic growth – and exploring where history is and is not relevant.
Here, Anastasia highlights the degree to which both consumers and corporations are far less sensitive to interest rate increases than they were in the pre-GFC era. Higher rates are a concern, but they need not derail the case for risk assets like stocks which have delivered good returns amidst higher rates in the past. For Anastasia, an instructive framework for evaluating opportunity is one that considers valuation, positioning and a catalyst. And in the context of this last factor, she notes favorable earnings revisions which are showing signs of recently bottoming and strong earnings growth, specifically in the tech sector. We spend the bulk of our time on the important topic of diversification and the faltering performance of the traditional 60/40 portfolio. She highlights exposure to global macro hedge funds, a strategy that delivered a 9% return in 2022 as both the stock and bond market lost nearly 20%.
We finish the conversation by having Anastasia reflect on the state of female careers in financial services. She states that the industry has become more inclusive and more representative of women in leadership roles. With this progress noted, she sees a gap in women serving in the middle, between junior and senior roles, potentially the result of the unique demands on females that often include family responsibilities. Ongoing attention to office/life balance and creating a degree of flexibility in work is likely one part of the remedy here.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Anastasia Amoroso.
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