Pictured: The Avenue Team navigating these markets
Tariffs are the immediate problem, but the lasting impact may come from uncertainty creating economic paralysis and damaged international relationships between countries. The most striking observation is the intensity of the sentiment shift where many investors are caught off guard by the arbitrariness of the US tariff proposals. At Avenue, we believe we have taken steps to get ahead of what was a well telegraphed economic and subsequent stock market disruption.
The question we are trying to solve has not changed. How can we protect our savings and our purchasing power over time? Despite the current moment, in the years to come the US and Canadian currency will continue to be devalued. Putting your cash under the mattress is often the worst thing to do. We know the answer is to be invested in businesses that can retain, and with high probability, grow their value.
Below is a Checklist Summary of how we are currently invested in our average equity portfolio.
Avenue’s Equity Portfolio Checklist
1. Have some cash so that if high quality stocks are on sale, we can make new investments at great prices.
Current Allocation: 10%-20% (including short-term TBills)
2. Maintain gold stock exposure. What we are experiencing is an international deterioration in confidence where once again gold becomes thought of as ‘hard’ money.
Current Allocation: 8%-12%
3. Have quality, high dividend paying stocks where the underlying business will remain profitable, even in a weak economy. This gives us more cash in the portfolio to keep reinvesting as we go through this period of stock market uncertainty.
Current Allocation: 20-25%
4. Own quality businesses where they are not directly exposed to tariffs. Businesses where we believe the underlying business will be better in 3-5 years, even with a slowdown in the economy.
Current Allocation: 55-75%
5. Use Avenue’s Tail Hedging strategy where appropriate to give extra protection against further unanticipated stock market events.
Current Allocation: 1-2%
6. Don’t own overvalued and over-owned U.S. Magnificent 7 Technology stocks. Global investors and Index investors are materially over exposed to these investments.
Current Allocation: 0%
Note
Back in November, when there was a proposed real threat of tariffs, Avenue went through the portfolio and minimized as much direct traffic impact to our investments as possible. Sentiment will affect the price of our stocks in the stock market, but our businesses will get through this difficult period of economic adjustment, and many may even exceed our expectations.
