June 2023 Portfolio Update

June 3, 2023 —

May was a good month for QuantStreet, continuing our outperformance relative to a number of asset allocation benchmarks since launch.1

We wrote in our last investor letter that because of “revolutionary changes that AI will bring to the economy . . . tech stocks — not credit sensitive, no real estate exposure, long-dated cash flows, good earnings prospects — seem attractive despite already-high valuations.”

That view proved correct and we believe these trends are set to continue. The below chart shows the performance of the S&P 500 (SPX) index and the tech-heavy Nasdaq 100 (NDX) index over the last five years (both normalized to start at 100).

Our research

Over the last month, we’ve been actively writing down our thoughts about markets and the economy. In keeping with our new monthly update format, rather than boring you with the details, we simply point you to our work:

Positioning for the month ahead

Our portfolio positioning for the next month reflects a combination of price trend and our (machine learning based) return forecasting model:

  • We maintain our tech exposure despite even higher valuations this month than last month. Our view is that the advances underway in AI — which impact everything from how we write emails to how we invest — will revolutionize large swathes of society and economic activity. (At QuantStreet, we’ve been using machine learning tools since day one, and we’re now actively using Google’s Bard AI product to conduct financial planning research.)
  • We overweight U.S. Treasury bonds and international investment grade government bonds based on our forecasting model’s valuation signals and supportive fundamentals.
    • The Fed and global central banks have injected a lot of tightening into the system, and combining this with the 2023 banking tremor in the U.S. suggests to us that economic growth and inflation will ultimately slow which will support bond valuations.
    • Our view is that the Fed is several months (or quarters) ahead of other central banks in its monetary policy cycle. The differential between U.S. and international interest rates will likely decrease, which will be negative for the dollar. Our allocation to high-quality international government bonds will benefit in this scenario.

New product offerings

We have two new offerings that we want to highlight:

  • We are actively engaged with clients in financial planning. If this is of interest, please contact us.
  • In addition, we are offering model ETF portfolios via a subscription service. We will provide more information about this offering shortly.

If you would like to have a discussion with us about any of the above issues or any other financial-related questions, please reach out at hello@quantstreetcapital.com.

1If you’d like to learn more about all of our holdings last month, or about QuantStreet’s performance since launch, please don’t hesitate to be in touch and we’ll be glad to provide details.

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