Barometer Portfolios maintain a defensive positioning with a focus on sectors such as financials and materials, while holding substantial cash in response to rising inflation and weak equity breadth. Commodities and dividend growth stocks have shown strong performance, with portfolios prepared to adjust when market conditions change.
Key Points
Defensive Positioning with Elevated Cash Levels
- High cash levels maintained across all pools for flexibility and capital preservation.
- Equity Pool: 45% in cash/T-Bills, 10% gold.
- Balance Pool: 17% in cash/T-Bills, 35% bonds, 5% gold.
- Income Pool: 21% in cash/T-Bills, 12% precious metals, 11% in the Music Royalties Fund.
- No major buying is planned until market breadth shows improvement—possibly after the April 2 tariffs come into effect.
Inflation Assets Are Outperforming
- US CPI and Canada CPI both came in hot, reinforcing the higher inflation theme.
- Commodities Index (USCI) has now logged 7 consecutive monthly gains.
- Gold is 48% above its 200-day moving average; rally has lasted 426 days, still early compared to past bull markets.
- Copper performing well despite weak equity markets, which supports the inflation outlook.
Gold and Precious Metals Are Central to the Strategy
- Gold is a core defensive holding; makes up 50% of the macro portfolio.
- Central banks are buying gold at the highest pace in 49 years.
- Gold now outperforming technology stocks (QQQ) since 2021—a shift similar to the one in 2000, which preceded the tech wreck.
Increased Allocation to Global Equities
- Allocation has risen from 5% to 10% in recommended mix, with more increases under consideration.
- Global Equities Portfolio is up 44% over the last 14 months, outperforming the All World Index ex-US (up 25%).
- Comprises 80 high-quality securities:
- 40 value names.
- 40 high relative strength names.
- Portfolio ranks in the top percentile among over 1,000 funds in its category per Morningstar.
Financials Overweight Trimmed but Still Largest Sector
- Remain overweight financials, but reduced exposure by 7% in the past month.
- European financials (EUFN, EZU) remain key positions across Macro portfolio.
- Potential to add to Equity Pool if conditions warrant.
Income Portfolio Leveraging Dividend Growth and Alternatives
- Dividend growth stocks have outperformed since 2020; despite a recent pullback, they remain above trend.
- The Barometer Music Royalties Fund is generating US dollar cash flow: ○ 2022 return: 11.5%. ○ 2023 return: 11%. ○ 2024 YTD: 21%.
- Since inception: 50% total return, averaging 11% annually.
- Fund assets currently trade at 11.5x income, suggesting 40–50% premium potential on exit compared to market comps of 16x–18x.
Yields Are Sticky Higher and Weighing on Bonds
- Yields continue to make higher lows since 2020.
- German, UK, and Japanese yields are rising, encouraging repatriation of funds to those regions.
- US long bonds (TLT): ○ Recent rally but still below moving averages = downtrend
- Trend remains lower highs—no excitement yet about bonds.
Bond Market Faces Structural Pressure
- White House efforts to lower bond yields to refinance $8 trillion in debt are falling short as judged by the market.
- Yields remain elevated, preventing a bond rally. China is not buying US Treasuries, contributing to pressure on US debt markets.
Technology Exposure Significantly Reduced
- Technology exposure is now less than 1% in core equity portfolios.
- Macro Fund holds a -20% short position in technology due to underperformance. Gold outperforming tech stocks (QQQ) suggests a potential long-term leadership shift.
Currency Strengthening Trends Impacting Flows
- Euro, Yen, and Pound are strengthening as investors repatriate funds.
- The Canadian dollar has held at long-term lows (2016, 2020, and recently)—there’s potential for currency firming if these trends continue. Weakness in Consumer Discretionary and Equity Breadth
- Consumer Discretionary stocks are struggling despite representing 70% of US GDP.
- Global equity breadth models are weak:
- Fewer stocks globally are in uptrends.
- This limits new buying until stronger leadership emerges.
Portfolio Strategy Focus: Optionality & Leadership
- Barometer focuses on leadership areas only, not widespread market exposure.
- Selective positioning in sectors with net new capital inflows.
- Bottom-up stock selection prioritizing fundamentally improving and technically sound companies.
- High cash levels provide optionality, allowing Barometer to react quickly to market opportunities.