Pick And Choose

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What's going on?

According to investment bank JPMorgan, investors should be more choosy about where they put their money for the rest of 2020.

What does this mean?

If, at the height of March’s stock market selloff, you’d bought a simple exchange-traded fund invested in major US companies, you’d now be sitting on a 30%-plus return. Like similar (if smaller) bouncebacks elsewhere, that’s largely thanks to central banks and governments spending record amounts of money to prop businesses up.



But JPMorgan doesn’t think everyone’s share price will remain elevated. Eventually, cracks in weaker companies will show and stronger ones will begin to pull away. It may therefore be worthwhile adjusting your portfolio to focus on those investments likely to remain resilient – while reducing exposure to stock markets in the round (tweet this).

Why should I care?

Zooming out: Correlation implies frustration.


Investors often look at “correlation”: a measure of how closely certain investments move in sync. During dramatic economic downturns (and upswings), stock correlations tend to rise, making individual picks harder. After all, there’s not much to choose between stocks when a falling or rising tide lowers or lifts all boats at once. JPMorgan says correlations typically return to normal levels within a few months, however – which should make differentiation between stocks based on their fundamental characteristics easier. That could facilitate many happy returns not just for detail-oriented stock investors, but for bond, currency, and commodity investors too.



For markets: JPMorgan’s remix.


For the months ahead, JPMorgan recommends looking at “investment grade” debt, which is less likely to default, and especially bonds in developed markets. Its analysts also suggest buying stocks in the tech, communications, and healthcare sectors – likely to be coronavirus “endgame winners”. And in currencies, JPMorgan advocates selling the US dollar and buying the Japanese yen, Swedish krona, and certain emerging-market currencies like the Russian ruble and Mexican peso.

Originally posted as part of the Finimize daily email.

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