Citywire recently sat down with GFG Capital Co-Founder and Managing Partner Mauricio Gruener to discuss how the firm has been handling this year’s volatile U.S. market and how they are preparing for the possibility of the bull market ending.
Gruener explains that GFG Capital’s overall strategy has been focusing on implementing a global allocation, with secular themes in mind across their client portfolios. “We look to add incrementally to regions that have been seemingly abandoned by the market through ad-hoc portfolio rebalances when conditions seem to be over-stretched, for better or for worse,” says Gruener.
Furthermore, Gruener describes how he has implemented the philosophy of factor investing within GFG Capital’s equity portfolio. While others may deem the firm’s process as passive, Gruener states that the work completed in-house is actually a more cost-effective version of active management.
Gruener states, “We think the GICS reclassification that was executed this summer is a perfect example as to why asset allocators should be targeting exposures with stronger explanatory power that are less likely to be reimagined by a third party.”
“That being said, our tactical overlays tend to lead us to putting on short-term exposures through the dark arts of technical analysis,” he continues, while also adding that sector or industry-specific ETFs could be another efficient option to carry this out as long as it is the right time to do so.
In regard to the current market environment, Gruener says that it is now difficult to overlook the front end of the curve. As he explains, “The two-year Treasury is yielding 2.92% – its highest level since 2008. Arguably, [it is] still largely being ignored by investors today. If two years is too long-term for you, one- and three-month T-Bills are inching closer to 2% yields as well”
Despite these sentiments, he is not convinced that the end of the bull market is now. However, he does note that the psychological perspectives of investors have changed, with the scar tissue from 2017 specifically leaving a lasting impact.