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Macro Minute: Week of June 23, 2025

Written by Wes Johnson on . Posted in Macro Minute.

I talk week to week about what I see as the biggest developments in markets. I don’t want to give the impression that I am making these observations and trading on that shorter time scale. I believe in holding a portfolio over the long-term and being invested in assets that have a reasonable expected return that differs from other holdings in the portfolio. In other words, I believe in holding a diversified portfolio. My job, and the reason that I watch these ongoing market developments, is to manage risk. I try to manage risks to both the upside and downside. Through time I have been pretty good at managing the downside risks, while being ok at positioning to the upside risks. I have tried to evolve and listen to the market to find when paradigms change because I think that for the most part market moving events are rare and the right thing to do is nothing. Let me try and breakdown how I work this out in my mind by giving some examples. 

  • One of the biggest risks I see in markets today is the overconcentration of U.S. assets by investors. This has many carry on and knock on impacts. I have talked about global imbalances at length in previous Macro Minutes and how that has led to a concentration of ownership in U.S. assets. I manage this risk by staying disciplined in holding a diversified equity allocation of global equities and by trying to maintain a relatively even split. This has allowed for the avoidance of most of the downside risk in 2025, but I missed out on some upside risk in 2024 when the U.S. greatly outperformed. For now, I still see the risk of U.S. markets being over owned by investors and will continue to lean more heavily away from that risk. 
  • Another risk that I see in markets for portfolio managers is the rising interest rate environment. While the Federal Reserve has most recently cut rates, the long end of the interest rate curve has risen. I have discussed why this has happened on here before. For portfolio construction it means that bonds have been a source of risk, not safety. As a result, we hold shorter duration fixed income or even money markets for income and look to other sources to help diversify equity risk. I choose to use Real Assets and Managed Futures to diversify my equity exposure. This worked well in 2022 when both stocks and bonds were down while managed futures were up a lot. I continue to think real assets and managed futures will diversify equity risk better in this environment. 

These are just a couple of examples of how I assess and manage risks in markets. Mechanically, I adjust around a core asset allocation. Depending on risk tolerance, I invest in these four mentioned assets: global equities, fixed income, managed futures, and real assets. Along with cash, these makes up the broad allocations. Then when I see risks or opportunities like above, I will tilt into or away from these allocations. I will do this all while maintaining a baseline exposure because things may turn out differently than expected and you want to still be allocated.  

I wanted to show you how I look at and assess markets within a framework of investing for the long term. It starts with being diversified and then adds on risk management. Hopefully, this gives you a glimpse into how I look at and manage risk within an investment portfolio. 

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