Strategy Update: Broadened Exposure to Emerging Markets and Added Non-US Real Estate

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

We closed out client equity positions in Latin America and used the proceeds to open a new position in emerging markets. Within emerging markets, this new position sharply reduces our concentration in Latin America to under 10% from its previous 100%, strongly overweighting emerging Asia―especially China, India, and Taiwan.

Also, within liquid alts, we increased our allocations to real estate to 50% from 30%, and broadened it geographically to developed markets overall from 100% United States. Within real estate, however, we still have a strong (62%) concentration in the United States. The expansion of our real estate allocation required a reduction in our holdings of energy infrastructure Master Limited Partnerships.

Hungry for more details? Read on!

Equity: Replaced Latin America with Emerging Markets

This time, we did not await a Sell signal before closing our position in Latin American equity but rather switched it for a geographically broader position in emerging markets.

Per our algorithms, our call for Latin American equity had become a Hold, whereas not only emerging markets broadly and emerging Asia specifically had become Buy, with Strong conviction.

Moreover, to over-weight both Latin America and emerging markets both would have unduly concentrated client portfolios in Latin America, where momentum is weakening, at the expense of emerging Asia, where it’s strengthening.

So we took advantage of an exception in our systematic approach to portfolio management and closed out a position in a tightly focused subclass that, although it has yet to be a Sell, is sending us a Hold signal, in order to make room for a broader subclass that subsumes the focused one and that is blinking not only Buy but in fact Buy with Strong conviction.

Liquid Alts: Increased Real Estate, Added Non-US International Exposure

We have increased client real estate exposure to 50% of their total liquid alt holdings from 30% by adding non-U.S. developed-market properties to the U.S. properties held previously.

To pay for this enlargement of our allocation to real estate, we sold some of our energy infrastructure Master Limited Partnerships. The share held by this sub-asset class in our total liquid alt holdings is now down to 50% from its previous 70%.

Motivating this change was a surge in momentum in non-U.S. developed-market real estate investment trusts, triggering a Buy signal with Strong conviction to issue from our quantitative model.

Our call as to energy infrastructure MLPs is Hold.