In their latest Q2 2022 Market Commentary, GMO discusses the best places to fish in this market. Here’s an excerpt from the commentary:
You have heard us beat this drum before, but we are happy to repeat ad infinitum that valuation-driven investing works in the long term. Inflation, and policymakers’ responses, will undoubtedly be at the forefront of investors’ minds for the remainder of the year.
Higher rates typically cause people to reassess the fundamental value of investments, and this should be relatively good for Value, relatively good for non-U.S. equities, and particularly bad for anything more speculative in nature. (And speaking of speculative investments, Bitcoin, for example, has sunk below $20k leading to the liquidation of the leading crypto hedge fund Three Arrows.)
Our views and positioning have not markedly changed, and we wholeheartedly reiterate the suggestions we offered last quarter:
- Exploit this global Growth bubble with a long cheap-value/short expensive-growth equity strategy.
- Avoid the Growth bubble by investing in liquid alternatives.
- Skirt around the Growth bubble by pivoting your equity exposure to EM value, Japan small value, quality cyclicals, quality, and resource equities.
- Keep duration short in fixed income portfolios and use active management in credit, where there remain pockets of dislocated pricing and higher yields provide reasonable protection against bad outcomes. Following the months-long selloff, the opportunity for an absolute or total return approach in emerging market debt is also intriguing.
You can read the entire commentary here:
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