Business

‘Drive down the middle of the street.’ How this fund manager advises investors to navigate a difficult investment climate.

Further worries about China’s growth and jitters over President Vladimir Putin’s next move in Ukraine are likely to weigh on Wall Street earlier in the week. This is in addition to other concerns.

“The global investment community is slowly waking up to the idea we have long been touting: that there is a euphoric ‘hangover’ after the COVID recovery, coupled with the inflation that will accompany it and now also a European war and new inflationary stimulus as the biggest haven to the world,” said Clifford Bennett, chief economist at ACY Securities.

These days, it pays to listen to seasoned money managers who have weathered economic downturns with searing inflation and geopolitical tensions.

Michael Cuggino, President and Portfolio Manager of the nearly 40-year-old multi-asset permanent portfolio fund family PRPFX,
-0.38%,
is back with fresh advice and our call of the day.

Cuggino spoke to MarketWatch late last year, where he warned that a new breed of investor would be entering uncharted territory with high inflation and rising interest rates, both of which have been unfolding in recent months.

In a recent interview, he explained that they’re dealing with all the new uncertainty by doing what they always do – “riding in the middle of the road.” This is especially important now because there are still so many unanswered questions about growth, inflation and geopolitics, he said.

The fund is roughly 42% split between equities, 36% bonds and pure commodity exposure. Year to date, it’s down about 4% versus a 13% plunge for the S&P 500 SPX.
-0.57%,
although it lags the index on a 3- and 5-year basis.

Permanent portfolio family of funds

Cuggino said lower-volatility stocks, exposure to commodities and high-quality bonds gave his fund some cushion during those bumpy months. “We recommend staying very diversified… but even with diversification, when the whole world is volatile, you’re going to be affected at some level,” he said.

Cuggino worries about where inflation will end and how long it will last, and at what point consumers will really start cutting back on spending. Should inflation prove extremely persistent, investors will want to stick to industries that can control cost structure and pricing power, he said, adding that “this theme is sweeping our stocks, regardless of the industry.”

How far the Fed will hike rates, the midterm elections and concerns about the Chinese economy are also smoldering issues. Some investors argue that the imminent Chinese slowdown means the commodity rally has gone too far, while others say it just means stimulus is imminent when the COVID-19 shutdowns end, Cuggino noted, adding: “I think both are plausible so generally speaking we have exposure in both of those areas.”

As for the range of stocks in which the fund invests, the US mining group Freeport-McMoRan FCX,
-4.44%
is its top holding while the fund has a toe in the tech space with Nvidia NVDA,
-0.90%
and metaplatforms FB,
-2.17%,
with Lockheed Martin LMT,
+1.42%
and Costco COST,
-2.70%
among other major holdings.

Read: Dan Loeb says he’s strengthening oil and gas positions and warns tech stocks may not bottom out yet

The Buzz

As Russia’s Victory Parade begins, Putin said the West forced his country into the month-long and bloody invasion. The holiday marks Russia’s defeat by Nazi Germany in 1945.

Ukraine, meanwhile, has ordered nationwide curfews amid fears Russia will step up attacks over the holiday period after a deadly weekend. Japan is set to join G-7 efforts to ban Russian oil as the European Union’s planned embargo is stalled by objections from Hungary.

About UBER,
-2.83%
CEO Dara Khosrowshahi Reportedly communicated to staff in an email that the ride-sharing company plans to cut costs and treat hiring as a “privilege.”

Tyson Food TSN,
-0.09%
will report results before opening, with results from cinema chain and meme favorite AMC Entertainment AMC,
-6.33%
and online video game group Zynga ZNGA,
-2.88%
due after close of trading.

Wholesale inventories are ahead of a week that will put the spotlight on inflation, with consumer prices due on Wednesday. China, meanwhile, saw dismal data, with exports rising 3.9% annually in April, the lowest in two years, declining from a pace of 14.7% in March. Shanghai too tightened his lockdowns as COVID-19 spreads.

The markets
blank

Uncredited

stock futures ES00,
-1.96%

YM00,
-1.62%

NQ00,
-2.49%
decline as government bonds issue TMUBMUSD10Y,
3.180%

TMUBMUSD02Y,
2.688%
surge, along with another surge in dollar DXY,
+0.13%
across the border. oil CL00,
-2.87%
crashes as Saudi Arabia cuts prices for Asia and Europe. bitcoin BTCUSD,
-5.05%
hovering around $33,000 after a weekend of sales. Asian stocks were mostly sold off while European stocks SXXP,
-2.09%
are also under pressure.

The graphic

Bank of America strategists Howard Du and Vadim Iaralov say the end of the week marks an increasingly stressful time for investors.

“Weekday seasonality in 2022 shows that USD tends to rise and US stocks tend to sell off on Thursdays and Fridays. Retracements have been more frequent on Wednesday for USD and Monday afternoon for US stocks,” they say.

blank

Bank of America

Random Reading

In case you missed it, here’s Bono and The Edge from U2, Performance with popular Ukrainian band Antitila in a Kiev metro station/bomb shelter over the weekend.

A couple gets thousands of dollars for a traded painting for some cheese rolls.

Rampant misidentification plagues the famed iconic Formula 1 broadcaster in Miami.

Need to Know starts early and will be updated by the opening bell, but sign up here to have it delivered to your email box once. The emailed version will be sent around 7:30am EST.

Do you want more for the coming day? Sign up for The Barron’s Dailya morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch contributors.

https://www.marketwatch.com/story/drive-down-the-middle-of-the-road-how-this-fund-manager-advises-investors-navigate-a-tough-investing-climate-right-now-11652095555?rss=1&siteid=rss ‘Drive down the middle of the street.’ How this fund manager advises investors to navigate a difficult investment climate.

Brian Lowry

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