Market is going through the long awaited correction, Not pancking...yet! I review my own portfolio once in a few weeks and see if I can tweek it. I contructed an asymmetrical barbell with mainly Vanguard's ETFs (SAFE) and small/mid sized allocation for growthy stocks. I also have a basket for non-corelated stock. I had posed questions here at 5i Rearch in September 2023 and slowly constructed these "baskets"!
My quesion is this: How come VPU Vanguard's utilities ETF and almost all of my Private equity stocks including your all time favourite BN plus BLK/BX and most notably KKR are all down?!! They are supposed to act as a buffer, no? Because I have been buying them slowly, I am still in the positive territory, except VPU. But the fact that the non-correlation isn't taking place, makes me wonder if I have to tweek my percentage of allocation. I know it is personal. But this is more a conceptual question.
Would you add to Utilites and Private equity here or keep this framework and stay the course?
BTW my Canadian Utilities like EMA/H/FTS have withstood this correction and indeed have shown the anticipated non-correlation!
Sorry for this longish question.
Look forward to your answer.
In a market sell-off that we have seen, nothing is really safe. Correlation tends to increase in market panics. In addition, investors often sell their winners first, so 'good' companies can drop just as fast as less-good companies. It is a 'shoot-first' type of scenario. On utilities, there was a back up in interest rates on inflation fears, and this did scare the sector (rates have reversed a bit, but inflation fears persist). In private equity, this has also hurt the sector, but also recession fears have as well. Now, in a rational world a recession is good for private equity (cheaper valuations) but the market is not acting rational right now. But to be fair, there is a massive amount of uncertainty, with US policy moves changing by the hour, or by the tweet. This is not good for companies looking to deploy capital such as BN. VPU is still up 3.49% this year and rose yesterday in the mini-crash. We would be entirely happy with that performance. In the expected scenario, we would be comfortable buying utilities today. We think a slowdown is far more likely to result in lower rates than inflation, but there is a risk on this call due to tariffs. But economic growth has essentially ground to a halt in the first quarter. We would be OK buying some private equity, but are a bit less confident in that call. We have yet to see true capitulation selling in the market. It may not happen, but it certainly could as well on any more bad news or weird policy moves.