GTI – Dated May - 11 -2021

Ok , so you made some money in 2020 – and you have love hate relationship with the Fed !! and hence you made hot potatoes trading crypto currency ( look out for my next blog on that) and now you are asking where does the money go from here ?

· Nominal Bonds – Risk is too high for a nominal rate spike and credit spread widening. I would wait it out till we know if UST 10s can inch closer to 2% yields in Q3/Q4

· TIPS - Overbought and inflation expectations may be transitory as per recent Fed Talk which I believe might turn out accurate

· Munis – for the folks fearing tax hikes, yields are already suppressed and multi year lows

· Growth and Meme Stocks – Expectations have tempered but there is some value in the ones which have corrected significantly in 2021.

Short story – risk is against you this year. Whatever you put money onn, correction risk is likely looming. Federal stimulus is going to dry up, Monetary stimulus will tighten ( starting with tapering in asset purchases) and we may get a potential Tax Bill passed in Congress - mainly affecting corporates.

I think a good risk adjusted strategy is to look at Emerging Markets right now. I have scouted a lot of good funds (both ETFs and Mutual Funds) which have sizeable AUM and decent liquidity. These are a select few tickers

EEM , VHGEX, FSPSX ,EPP , Country Focused - India – INDY , Country Focused – China - KWEB , MCHI, GOPAX

Of these, my best pick is EEM. Its lower risk , highly liquid with stable AUM and good exposure to China and East Asian economies. Charts below shows EEM has not nearly caught up with SPY partly because the stimulus in Asian and Emerging economics was nowhere near compared to US and developed world. Gradual reopening, higher vaccinations in coming months, and general reflationary economies of China, India, S. Korea, Brazil should see some outperformance for this ETF relative to SPX index. Entry point is good since EEM has corrected a bit from recent peak. Another correction or dip will create a great entry point to buy and hold for next 12months.

Risks to consider – sharp drawdown if COVID reemerges , FX rates if EM currency's devalue sharply against USD.