The Escudo portfolio has held up well in 1Q22 down 2% vs SP500 down 6%. The invasion of Ukraine and far more aggressive rate/inflation drivers required a significant overhaul vs the start of the year. I added a large position in Berkshire on value, exited all travel recovery plays and most banks and insurance company exposure and increased commodities (oil, fertilizer, and mining) and added Biofuels as well as consumer staples and US discount retailers. The shipping sector (container and bulk) has paid high dividends but the shares are volatile. The most recent position is a short on TMF which is a 3x leveraged 20yrUS Bond ETF. The rapid rise of US rates should push the 20yr Bond past 4% i.e. a 30% downside.
The macro-outlook is for persistent inflation to drive Fed and ECB to hike rates and for the bond market to price this in far faster than anticipated. This should have a negative impact on stock valuations (see link https://maxinvestblog.com/is-it-safe-to-buy-us-stocks/ ). While commodities should maintain or increase in prices on inflation, logistic bottlenecks, under investment and due to Russia sanctions.
My bottom up view calls for a 19% total return: 15% on price gains and 4% from dividends. As can be see in the table below, 35% of the portfolio is in defensive names such as British American Tobacco, Berkshire, QYLD and a short/hedge on TMF. The commodity exposure is high at 22%, which does increase volatility vs consumer staples or real estate (REITs) but I feel prices are unlikely to decline much as long as the global economy slows and inflation begins a gradual decline. If global GDP contracts that would be a signal to buy more volatile/Beta assets i.e. consumer durable, travel, technology etc. as central banks would need to cut rates again.
