Throughout history, geopolitical stress and tension has been ever-present. From ancient civilizations to today’s world, global dynamics have been largely shaped by wars, terrorism, and trade disputes. Financial markets, as always, have keenly observed and been significantly influenced as a result.

Our article delves into understanding this relation between geopolitical stress and financial markets, particularly the equity market. To briefly explain our approach, we seek to quantify geopolitical stress through an observable Geopolitical Stress Index (GSI). Using this index, we can explore the relation between geopolitical sentiment, good and bad, and instruments available on financial market. Lastly, we seek to see if geopolitical sentiment is something that can be used to impact trading decisions and develop profitable trading strategies.

One of the main reasons why the Pragmatic Asset Allocation Model was designed is to give investors a tax-efficient possibility to invest in a global equity portfolio with a lower risk than the passive buy&hold approach. Therefore, the PAA model is not the “absolute return” model but rather the tactical model that prefers to invest in the equity risk premium and move to the hedging portfolio (gold, treasuries, or cash), only for short periods and only when it’s absolutely necessary. We use price trend+momentum indicators and yield curve inversion as signals for such situations when (based on the past data) there is a higher probability of recessions and equity bear markets. What is unusual in the current situation is the length of time that the YC is inverted (19 months at the moment), which makes it the 2nd longest YC inversion in the last 100 years, and we are analyzing the implications for the PAA model.

The topic of today’s short blog post concerns a subject that’s connected to everybody participating in financial markets worldwide: different subjective return expectations. It is reasonable to have some expected returns you can count on if you are putting your money at risk. But how do they differ between different market professionals? And are return expectations influenced by recessions? We will look closely at financial analysts and their views on risk premia. The main point from the authors of the analyzed paper stresses the idea that analysts are counter-cyclical.

Have we mentioned, that we love history? Probably more than just once. What we like on the academic studies which use longterm data is that they offer a bird-like view on the financial markets. The daily noise and ebbs and flows retreat into the background and macroeconomic and geopolitical trends emerge. This top-down analysis helps to design the asset allocation or shape the overall structure of the portfolio of systematic trading strategies that may then trade on the higher frequency. Bryan Taylor’s paper offers a treasure of tables and charts depicting over 800 years of history of returns of global stocks, bonds and bills.

Choosing the right investment strategy plays a crucial in portfolio allocation decisions, particularly when considering both private and public asset classes. While the reported performance of public assets typically matches their real-world performance, the same cannot be said for private assets due to the complexities of fund selection, commitment pacing, and return on uncalled and uncommitted capital. Fortunately, there are ways to incorporate public and private asset classes into one portfolio optimally. One example is the recent paper written by Xiang Xu, which introduces the Fair Comparison (FC) framework, which provides a methodology to measure the real-world performance of private investment strategies.

Alternative investment assets (also such as rare vintage and collectible items, expensive old high-quality alcohol, discontinued fashion, etc.) are a hit among wealthy investors, even though it is not easy to obtain direct or indirect exposure to diversified art investment(s) in a traditional finance kind of way. However, alternative assets are helpful in portfolio diversification as they last (if stored properly), usually appreciate in value (but sometimes not very predictably), and have a low correlation to traditional assets like stocks, real estate, gold, or fixed-income securities. Although alternative assets are highly illiquid and sometimes very challenging to value correctly, researchers are interested in them. We will closely look at one of the research papers that investigates the role of art in the portfolio, utilizing mean-variance optimization and less-used STL decomposition.