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Alternatives

Alaska Permanent Fund Contemplates a New Dalio-Backed Gold Allocation

The new allocation would provide the portfolio with a new risk-mitigating asset class, citing the support of Bridgewater Associates’ Ray Dalio.
By Steffan Navedo-Perez

The Alaska Permanent Fund Corporation (APFC) board is discussing the potential of adding a new gold allocation to its $67 billion portfolio, as it received a report from its staff touting the diversifying characteristics of bringing the asset class on board.

The report hypothesized a 33.3% exposure to gold within the fund’s real assets portfolio would net an exposure of about $1.4 billion, or about 2% of the total fund.

Alaska is looking into diversifying its assets because “the APFC portfolio is vulnerable to environments of lower-than-expected growth or higher-than-expected inflation,” Bridgewater Associates said. The report illustrated the relatively prominent likelihood of a recession occurring by December and the risk of the United States entering a higher inflation environment in the future.

“[Gold] can be positioned to benefit from any eventual disappointing outcomes from today’s extreme and unprecedented Central Bank activities, favored emphatically by investors like Ray Dalio and Paul Singer,” the report said.

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“I think these [equity linked/traditional investments] are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” Dalio said.

The board has stated its intentions to redefine its asset allocation policy this year, however, that could now be tentative due to operational strain caused by the coronavirus.

The gold allocation would be fitted into a “real assets completion portfolio,” together with TIPs [Treasury inflation-protected securities], leveraged loans, and listed infrastructure and natural resource equities. The report said the asset mix would formulate a “defensive and liquid portfolio” that provides the fund with inflation protection from a source other than private real estate.

While it would be forecast to have an expected return below that of real estate, the report states it would weather terrible market conditions more prudently, while delivering yield and other characteristics that are pertinent to real assets investments, such as low correlations with equities.

The report mentioned it is only for informational purposes, noting further action from the board could be taken in the future with a more revised asset allocation proposal. The one proposed in the report would last until fiscal year 2025.

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Home > News > Market Moves > Why Not to Sell in May and Go Away
Market Moves

Why Not to Sell in May and Go Away

The summer season has been pretty good to stocks over the past eight years, LPL notes.
By Larry Light

Ah, it’s May. Time to dump your stocks. As the old saying goes, “Sell in May and go away.” After a summer snooze, the logic holds, stocks are better bets in November.

LPL Financial’s research folks say that, historically, meaning since 1950, the sell-in-May adage is largely true—except for seven of the past eight years. From 2012 through 2019, the S&P 500’s lone down period in the May-October range was in 2015, when it was off 0.3%. And that was during the mid-decade mini-recession, when economic growth slowed due to an oil-price slump.

The rest of the time, the top performer was 2013, up 10%. Now, this just happened to be when the post-financial crisis bull market really got going. The question arises: Isn’t LPL just data mining by lopping off the first two years of the past decade?

After all, if you rope in 2010 and 2011 (down 0.3% and 8.1%, respectively), which was when the European debt crisis got underway, the May-October record is a little less shiny. Nevertheless, the summer spell still comes out ahead with the most gaining periods (seven up, three down).

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The old-time thinking was that investors, not to mention stockbrokers, were on summer vacation a lot, or at least taking things slower. Thus, stocks drooped because of inattention. The rise of rapid-fire trading and index funds, and the shrinking of individual stock names because of mergers, among other reasons, may have injected some scarcity psychology among equity traders. And stock prices over the past eight years got especially juiced.

“Stocks are up more than 30% from the March lows, suggesting a well-deserved pullback during these troublesome months is quite possible,” explained LPL’s senior market strategist, Ryan Detrick, in a research note.

Whatever the explanation, May 2020 isn’t off to a rollicking start, down 1.5%, thanks to Friday’s (May 1) slide of almost 3%. Monday and Tuesday were positive, but not enough to reclaim all the lost ground. And more down days could well come in the not-so merry month of May and beyond.

But that doesn’t mean that May or those other balmy months will necessarily be lousy for stocks. The gigantic Washington aid program will be an important factor. “With the dual benefits of record monetary and fiscal stimulus helping to bridge those most impacted by COVID-19,” Detrick continued, “we continue to expect this recession to be one of the shortest on record and a much stronger economy later in 2020.”

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