Beware consensus trades in uncertain times

Beware consensus trades in uncertain times

SUMMARY

History suggests that US dollar rallies often last longer than fundamentals justify. We are carefully watching, however, for signs of an overshoot that could reverse in 2023.


Investor positioning, including very large net short positions in non-US currency futures, US stocks and bonds, is indicative of bearish expectations across much of the world. The US appears to be a “safer haven.”  For now, our asset allocation is effectively overweight US dollar assets, and dollar strength has benefited these positions.

While that may be true, unwinding positions held by a very widespread consensus of investors can lead to sharp contrarian movements across asset classes. We see overbought and oversold markets in wartime as reasons to maintain the highest quality, income-oriented investments for the present time.

Surging energy costs in Europe and Japan have compounded the effects of the Fed’s rapid tightening pace, sinking the euro, pound and yen in a way that might remind some observers of EM currency crises of the 1980s.

Our most recent forecast update (August Quadrant) estimates the forthcoming economic impact of rapid central bank tightening steps. We are slightly underweight global equities and overweight global bonds and have far higher weightings in US assets than non-US assets. This has benefited our portfolios as the US dollar returns of equity markets such as Japan (where we are underweight), have been dramatically worse measured in dollars than yen.

For many non-US investors, unhedged US dollar bond holdings have added value simply through currency appreciation. All of this creates the likelihood we will make major changes to portfolio composition this coming year.

At present, our allocations continue to earn US dollar income from the investment grade company bonds and quality equity dividends. As conditions evolve in 2023, foreign exchange considerations – which have helped our current allocations – will be continuously revaluated as events unfold and as the US dollar achieves unsustainable value relative to other currencies.

While we are quite confident the US and other world economies will slow, we need to be mindful of the volatility inherent at this uncertain time. We must, therefore, proceed with caution and discipline in how we manage portfolios that seek to protect and build wealth.

Insights

See our investments insights and the issues that matter for your wealth.

Insights

See our investments insights and the issues that matter for your wealth.

Contact us

To help put you in touch with the right Private Bank team, please answer the following questions.

Are you an existing client?

Please fill out the form, so we can contact you.

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant  privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

What profile best describes you?

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
inerested_in
Lending
Real Estate
Trust

Please select alteast one.

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
Law Firm
Lending
Real Estate
Trust

Please select alteast one.

Job title & Company

Job title & Company

Location

Location

How would you like us to contact you?

How would you like us to contact you?

Please enter your contact details

Please enter your contact details

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

Thank you for your interest in Citi Private Bank. A member of our team will be in touch with you shortly.