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The day will surely come when the managers of this news site replace me with an AI chatbot. (Voice from the peanut gallery: “How soon?”)
But I have my backup plan ready.
I’m going to launch a hedge fund, and my winning strategy is already lined up. I’m going to look at what the big institutional investors, including pension funds and endowments, are doing with their portfolios.
Then I’m going to do the exact opposite.
Regular readers know this is the idea behind Pariah Capital, an occasional feature here where I look at how you’d do if you invested in the assets that the big money honchos on Wall Street were shunning. Pariah Capital is tongue-in-cheek, but it’s not a joke. As this week’s news confirms.
Institutional investors now hate, hate, three assets, according to the latest global fund manager survey from BofA Securities. Those assets are: commodities, energy stocks, and Treasury bills.
Big institutional investors now hold a smaller share of their portfolios in commodities than they did even during the depths of the 2020 Covid crash, when oil (briefly) went negative. They have their lowest exposure to energy stocks since November 2020, when Covid vaccines had yet to be rolled out and the global economy was frozen. They have their smallest exposure to Treasury bills than at any time since early 2021, before rocketing interest rates made them so appealing.
Needless to say, Pariah Capital now loves all three.
Chart from the latest BofA Global Fund Managers’ survey. Source: BofA Securities.
What is so extraordinary is that the big money crowd hates these three assets after they have underperformed a basic, balanced portfolio. But back in January the same fund managers loved them.
As I pointed out at the time, commodities, energy stocks and Treasury bills were among the eight assets that were the most popular on Wall Street, and on which global fund managers were making their biggest bets.
I wasn’t planning to do an update on Pariah Capital until January, but this stunning turnaround revealed in the latest BofA survey has forced my hand.
Back in January, fund managers absolutely loved, and were most invested in, eight assets. In addition to the three mentioned, these included European and emerging markets stocks, and the stocks of healthcare companies, consumer staples companies, and banks.
You could follow their picks by owning eight low-cost ETFs: Goldman Sachs Access Treasury 0-1 Year ETF
GBIL,
iShares S&P GSCI Commodity-Indexed Trust
GSG,
and Energy Select Sector SPDR ETF
XLE,
as well as the SPDR EURO Stoxx 50 ETF
FEZ,
Vanguard FTSE Emerging Markets ETF
VWO,
Healthcare Select Sector SPDR ETF
XLV,
Consumer Staples Select Sector SPDR ETF
XLP
and SPDR S&P Bank ETFKBE.
How have they fared?
Er…pretty badly, really. A portfolio that followed these geniuses and invested equally in these eight ETFs would have made a princely return, so far this year, of 5.3%. Before fees, naturally.
That is a full 10 percentage points less than the 15.3% you’d have earned if you had just put your money in a simple, benchmark portfolio of two index funds: 60% in Vanguard Total World Stock ETF
VT
and 40% in Vanguard Total World Bond
BNDW.
Yikes.
You can see why these money managers earn the big bucks, can’t you?
Meanwhile, back in January I also revealed the 2023 portfolio of Pariah Capital, based on the eight assets that these fund managers liked the least, and in which they were the most underinvested. The portfolio consisted of the ETFs Vanguard Total Stock Market
VTI,
Franklin FTSE United Kingdom
FLGB
and Japan
FLJP,
Vanguard Real Estate
VNQ,
Fidelity MSCI Utilities Index
FUTY,
Fidelity MSCI Communications Services
FCOM,
Consumer Discretionary Select Sector SPDR
XLY
and Technology Select Sector SPDR
XLK.
Performance so far this year? They are up, on average, by a staggering 24.6%. That’s way ahead of the global 60/40 portfolio, let alone the fund managers’ top picks.
Pariah Capital wins again. Bring on Chat GPT.
I’ll do another update in January, when we reveal Pariah Capital’s picks for 2024. Meanwhile, I’m passing on the news that the big money geniuses are shunning commodities, energy stocks and Treasury bills. Will these investments now start beating the market? Stay tuned.
