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Market volatility and diversification

Hope everyone is getting a good rest. I feel accomplished after mowing my lawn and getting started on my home remodeling project… am I the last to discover that Amazon is delivering bathtubs? Also let me give a shout out to my partner and CFA Yan for writing an excellent article on how to compare returns of different deals Over the week I reflected on what is going on in the market and try to identify some risk that is lurking under the surface. What is happening?... The Real estate market is still HOT due to record low inventory (nationally, 29% YOY decrease and 2 months of inventory). At the same time, interest rate has shot up with the fastest rate of change and seem to have range bounded between 1.60%-1.70% range for the 10-years treasury. If rate continues to climb, my view is slightly bearish. We may have reached a local top, but the work-from-home and multigenerational household trends should continue to support demands. Biden is probably going to extend the eviction moratorium which is expiring on March 31st. The Equity market is more interesting… market volatility is showing its teeth. March 2021 month to date returns for hedge funds have negative returns. It may be a surprise since the market is anticipating a reopening and reflation trade. Is good news the bad news for the market?

The Robinhood app has been popular among the retailer traders and the WallStreetBets crowds… now it is not even top 50 on the Apple app store. Volume has been lacking last 2 weeks, and my guess is that investors have gone on Spring Break vacations, or stay-at-home traders are going back to work/school. Even the well-loved Cathie Wood’s ARKK fund has been hit hard after it has gone to the moon.

No one knows for sure what is the next market move, and we could still see the market closing at All Time High… and there is a $3T infrastructure bill in the horizon… But it is time to be cautious and look for diversification… If you are already invested in real estate and the equity, consider add to your portfolio some uncorrelated asset that focus on downside protection… why? A 50% loss needs a 100% gain to just come back to square one. Our team rolled out a recession resistant fund earlier this month that focus on cashflow. It does not use any leverage or bet on any appreciation. For anyone who missed last investment opportunity due to the compressed timeline, we plan to have another tranche coming up in early April. Please keep an eye on our email for webinar registration. See you soon!

Invest with Confidence

Henry Yuen

Sharpe Investor Group

Want to invest for passive income? Click here

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