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Summer Portfolio Repositioning: Maximizing Carry with Strategic Adjustments

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Summer Portfolio Repositioning: Maximizing Carry with Strategic Adjustments

As summer approaches, many investors are looking to optimize their portfolios for the coming months. Strategic reallocation can be a powerful tool to maximize carry, a term referring to the ongoing return generated by an investment (interest payments, dividends, etc.). This blog post, informed by insights from UBS analysts, explores strategies for summer portfolio adjustments with a focus on maximizing carry.

Challenges of the Current Market

The current market environment presents unique challenges. Rising interest rates and potential economic slowdown can impact traditional asset classes. Here's what some experts are advising:

  • Reduce Exposure to Riskier Assets: UBS recommends minimizing exposure to potentially volatile investments like European HY (high-yield) bonds (3-5 year maturities) and credit default swaps (CDS) like ITRX Main.

Strategies for Enhanced Carry

Despite these challenges, opportunities exist for maximizing carry through strategic adjustments:

  • Maintaining Long HY Positioning: Contrary to the previous point, UBS suggests maintaining long positions in HY compared to investment-grade (IG) bonds, within both US and European markets. This can provide a higher potential return even with some risk.
  • Cash + Synthetic Investors: For investors with a mix of cash and synthetic exposure, UBS recommends:
    • Increase allocation to US IG (3-5 years): This offers a balance between potential growth and income.
    • Reduce exposure to EU HY (3-5 years) and ITRX Main: This mitigates risk associated with these volatile assets.
    • Cautiously Re-enter EM at Benchmark Weight: Emerging Markets (EM) may offer an opportunity for cautious re-entry, but staying below a standard allocation is advisable.
    • Maximize Allocation to GBP IG (5-7 years): British Pound denominated investment-grade bonds with longer maturities could be a good source of carry.

Remember, these are general recommendations. A professional financial advisor can provide personalized guidance based on your specific risk tolerance and investment goals.

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