Artificial intelligence, the hottest topic of the last two years, is now burning investors' hands, causing the market to shift towards alternative options. There's a very clear flow of money from technology-heavy stocks to older industrial stocks. This year, in particular, the performance divergence remains exceptionally high. Looking at both the relative performance and absolute return of the Consumer Goods sector compared to the S&P 500 index, this is extremely clear. The Staples index, which includes agricultural stocks, personal care, chocolate, soft drinks, tobacco, and even grocery store chains, has actually become somewhat crowded due to the inflow of money since the beginning of the year.
A strong balance sheet will show investors they are in the right place when choosing stocks. However, a questionable item could cause a short-term shift in perception in already crowded positions. If you ask me, even if they sold Walmart, grocery store chains would still remain a good stock choice in a persistently high inflation environment. I should also mention that besides Walmart, CostCo and Target are also grocery store chains in the US. Last week, money managers saw a net decrease in their equity positions. However, given the current levels, the likelihood of the market absorbing the sell-off seems to be increasing. We can see this confirmation in the movement of 10-year bond yields.
The buying appetite seen in bonds for days could have two reasons; firstly, the revival of the Kevin Warsh issue and the shortening of time, but I give this less probability because it's too early to revive it. If you stir up the issue now and affect the price, its impact will have already faded by May. The second reason is the loss of risk appetite in the market and a shift to risk-off mode, seeking refuge in safe havens. Of course, this safe haven isn't gold or Bitcoin, but US 10-year bonds. That's why we've seen bond yields fall for days. But yesterday, Tuesday evening, the environment changed, and risk went back to risk-off. In other words, the market started to want to take risks and began to leave the safe haven and invest in equities.
Another group I follow, besides money managers, are risk-control funds. These funds try to generate returns by keeping volatility within a certain range. These weeks, risk control funds are holding only 72% of their total position size from recent years. This means they are currently holding only 72% of their highest position in recent years, and in a relatively calm environment with less volatility, they have a good margin to add more positions. We should look to the future with optimism!
Returning to the topic of artificial intelligence; for the past few weeks, research groups at major global banks have been sharing portfolios of stocks that will be positively/negatively affected by AI. Of course, it's impossible not to respect their work, and I'm sure some of the companies on the negative impact lists may not exist in the next 2-5 years. But if you ask me, even the companies on the negative impact list will likely perform very well in terms of stock price performance within a few months. Therefore, in times when the market is so volatile and questioning, I see great benefit in creating one's own retirement fund.
After identifying the sectors you see as promising for the future, you need to list the stocks within those sectors. Then, from this list, you should select a number of stocks according to your budget and start buying. However, this is somewhat critical; when buying, it's healthier to keep the investment of no more than 2% of the portfolio value of each stock at the time of purchase. 2% is my preference, but you can change it, of course. However, keeping the risk per stock low, including a large number of sectors, and diversifying your portfolio across many stocks will allow you to sleep more soundly at night. Your investment will then evolve not solely based on individual stocks, but also depending on sectoral developments and economic growth.
