Macro and SP500

Investing / Portfolios
1

Hi there,

I’d like to discuss the traditional long-term, passive portion of our portfolios that’s often allocated to the S&P500, and whether this strategy is still sound in today’s changing economic landscape.

(This conversation can go everywhere but I want to focus on the S&P500, the USD, the passive-long-term portion of the portfolio, and what’s best for us as Swiss investors)

For decades, we have relied on S&P500 for passive investment for its 7–8% AVG returns. Strong fundamentals, strong reserve currency, etc.

I guess we can at least agree that that is under question today.

Far from an expert here, but I understand that what’s happening today is:

  • Unsustainable levels of debts, fiscal and monetary expansion weakening the USD

  • Global power transition away from USA, and moving to other countries like China

  • Many S&P500 companies earn in multiple currencies, which helps counter a weak dollar. Yet, the USD weakens relative to the CHF (partially) eroding our gains as Swiss investors.

  • Many will move to the CHF as a safe heaven in terms of uncertainty.

  • USD at risk of losing world’s key reserve currency status. Yet, no good Plan B candidates.

Given these points, does it still make sense to continue investing in the S&P500, or should we look elsewhere to protect our long-term performance?

2

Not really, it’s more to the “All world ETF” up in this b :grin:
(Although SP500 is probably around 50% of it)

Btw just stumbled on a mega site accidentally :open_mouth:

5 Likes
3

As a side note for this topic: this month the Swiss franc gained 7% from (with/at/on?) the dollar.

4

I use the SP500 as one of the benchmarks for my mechanical strategies. The XIRR since 2012 is 11.38%. Since 2020 it is 9.7%. This is without dividends.

The index is a momentum strategy, not the best one in my opinion. Last years I think it did beat the equal weight index with the same constituents but over the long term the equal weight wins I think. My personal mechanical momentum strategy is at 20.01% XIRR since 2020 per today.

Please be aware that performance alone does not say much about an investment; one has to look at risk too. But then the SP500 has huge positions which is a risk I try to avoid.

5

Au contraire, there is: Bitcoin.

1 Like
6

In my opinion, the more important questions to ask are:

  • Is the world economy really changing? How?
  • Is there a country/region with that is more friendly to entrepreneurs/businesses than the US?
  • Is there a country whose companies have key technological advantages over US companies?
  • Is there a country whose companies have key manufacturing advantages over US companies?
  • Is there a country with natural resource capabilities that give it a decisive advantage over the US?
  • Is there a country that offers a bigger consumer market than the US?
  • Is there a country that has a strategic military advantage over the US?
  • Is there a country whose political system is more resilient than that of the US?

These are just some examples.

If your answer to one of these questions is “Yes” then you should consider rebalancing your portfolio to reflect your expectations, because economic growth and use of a currency are generally side effects of these fundamentals.

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7

Answers in bold. Personally don’t have the skill/confidence to rebalance so I buy market cap weight which rebalances itself based on all the above factors.

2 Likes
8

A sound, honest approach.

My point was that it’s more important to read the fundamentals than the tabloids.

1 Like
9

I think these are good questions but even if the answer to all of them is NO, what is the conclusion?

Neutral weight US or
Overweight US or
Underweight US

Argument for neutral weight -: investor doesn’t worry about 65% exposure to one country and doesn’t see this as a risk

Argument for overweight -: investor thinks that even though everything is priced in, there is a lot that is not priced in and USA will continue to outperform the world until the end of time

Argument for underweight -: investor have nothing against USA but doesn’t believe that 65% of their NW should be linked to fortunes of one country

——-

In fact I think most of the questions are pointers for investing in USA but not about how much should be invested

10

My personal opinion is that if none of the fundamentals have changed, then it probably doesn’t make sense to change your investment approach.

If your investments are weighted by market cap (like Mirager said), then things should sort themselves out.