• Portfolio diversification is a universally accepted key to investing, especially in tough years.
• Mark Yusko, founder of Morgan Creek Capital, shared his four-part investment strategy.
• Here’s how to manage investments in stocks, crypto, fixed income, and commodities.

Mark Yusko, founder of North Carolina-based investment advisory firm Morgan Creek Capital, agrees with two universally accepted principles of investing: keep a long-term horizon and diversify. But his views on how to proceed differ from the consensus.

In Yusko’s “all-weather portfolio”, which is designed for the “stormy seasons” that 2022 may bring, there is room for gold and digital gold, for very high-risk Chinese technology stocks and rock-solid pipeline companies. It’s an unorthodox mix, and it’s not a get-rich-quick recipe – which suits Yusko just fine.

“People should really think about portfolios with an annual and multi-year view, as opposed to day trading that continues,” Yusko told Insider in a recent interview.

No annual view of what lies ahead in 2022 would be complete without an opinion on how

Federal Reserve

manage inflation approaching 40-year highs. Whether the U.S. central bank can undo its pandemic-era emergency policies while containing price growth and appeasing investors is a key scenario to watch this year, Yusko said.

“We are at the end of a truly historic period of

liquidity

by global central banks,” Yusko said. He continued, “The whole world is flooded with cash. And it has impacted the valuations of everything from stocks to fixed income, currencies, commodities, house prices, collectibles and cryptocurrencies. It was all in that savage

bull market

in the last 18 to 24 months.”

Keeping up with the market twists and turns can be exhausting for investment advisors, let alone retail investors trying to build a winning portfolio. To simplify this complex landscape, Yusko explained to Insider his 2022 outlook for stocks, fixed income, currencies, cryptocurrencies and commodities – and the specific steps investors can take to get there. diversification.

Shares

For years, investing in a general stock index was an almost foolproof strategy. Simply mirroring the S&P 500, which has returned between 16% and 29% annually for the past three years, has proven to be a profitable tactic.

But the Fed’s decision to take its foot off the proverbial gas pedal and scale back its easy money policy will make that dynamic a thing of the past, according to Yusko. It’s time to be picky about stocks.

“We believe US stocks are heavily overvalued, especially FANGMAN stocks: Facebook, Amazon,

netflix

, Google, Microsoft, Apple and Nvidia,” Yusko said. “So we think the high-growth names are going to struggle in a risk environment, a cash drain environment.”

Instead, Yusko is looking at a pair of trades with recent returns that couldn’t have been more different: Energy producers in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which was up almost 64% last year, and Chinese technology shares of the KraneShares CSI China Internet ETF (KWEB), which fell 52.5% in 2021.

Energy stocks are coming off a bumper year — the sector is up 53% in 2021 — but Yusko sees more gains for the sector as oil prices stabilize on the back of steadily rebounding demand. He said his favorite name in space is Diamondback Energy (FANG), which is one of the largest holdings in the aforementioned XOP exchange-traded fund.

There wasn’t just one reason Chinese stocks had a brutal 2021, but there is a common thread: the Chinese government. Increasingly hostile rhetoric and actions from the country’s authoritarian rulers have resulted in mammoth fines being slapped on tech giants, stringent compliance charges, and even the upheaval of entire industries like after-school tutoring. .

But major players in the industry, including Alibaba, Tencent and JD.com, are value plays — not value traps, according to Yusko. Caution is advised, but space is full of opportunities.

Fixed income

On the fixed income front, investors will have to look high and low to find yield. In a regime of high inflation where interest rates are rising, Yusko said US Treasuries are falling out of favor.

“I probably wouldn’t own traditional bonds because I was worried about rising interest rates,” Yusko said. “So I would own bond substitutes.”

An alternative to good quality bonds is the ALPS Algerian MLP ETF (AMLP), which holds Master Limited Partnerships – publicly traded entities that are taxed as partnerships instead of corporations. The names of the exchange-traded fund come mainly from the energy sector.

“It’s the pipeline companies, the infrastructure companies, that move the hydrocarbons – oil and gas – and they’re about to spring money this year,” Yusko said. “It has a yield of 7.8%, so triple what you can get, almost quadruple what you can get in traditional bond markets, double what you get in high yield markets. And so AMLP should represent a large portion of your bond basket.”

Another way to find fixed income securities is to Barings BDC (BBDC), which is an externally managed closed-end investment company regulated as a business development company. Essentially, it lends to small businesses and is therefore tied to the strength of the economy, Yusko said.

“We think this has a tailwind as economies heal and we resume reopening after the Omicron wave,” Yusko said.

But what makes Barings BDC most attractive, according to Yusko, is its 8% dividend, especially in a world where the 10-year US Treasury is yielding 1.75%.

Currencies and cryptocurrencies

Turmoil could hit financial markets in 2022 as the Fed reverses its emergency monetary policy. He advises against owning the dollar, yen or euro, which he believes will weaken.

“In times of stress, you want to own currencies that aren’t fiat,” Yusko said. “I would rather own a cryptocurrency, because I think currencies – fiat currencies – are getting weaker, cryptocurrencies will continue to appreciate.”

For those who can stand nature

volatility

that cryptos inevitably bring, Yusko prefers to make itself known through Grayscale Bitcoin Trust (GBTC), which he noted offers up to 20% discount on the underlying assets, and Ethereum Trust (ETHE). Annual fees are high at 2% and 2.5%, respectively, but the trusts allow investors to buy into them from their brokerage accounts.

Merchandise

Some investors think bitcoin is for millennials and Gen Z, while gold is for baby boomers. But there’s no reason the two assets should be mutually exclusive, Yusko said.

It’s been a tough decade for the yellow metal. Gold prices are only up 12.5% ​​since January 2012 and have barely budged in the past year, despite inflation hitting 39-year highs. What should, in theory, have been a single catalyst for gold did little to move the needle.

But Yusko spies on an opportunity that can only be called golden. the SPDR Gold Trust (GLD) and the VanEck Gold Miners ETF (GDX) are his favorite ways to play space.

“The price of gold is depressed, but the relative price of mining companies is even more depressed,” Yusko said.

Additionally, Yusko believes that the Invesco DB Base Metals Fund (DBB) could take off as a massive shift to electric vehicles boosts demand for base metals like lithium and cobalt.