Michael Contopoulos 2.9 15 ideas

We maintain overweight positions in cyclical international markets, emerging markets ex China, and U.S. sectors like industrials, energy, and materials, based on the view that the macro outlook hasn't significantly deteriorated and these positions will benefit if the Middle East conflict resolves, as the landscape from January and February could reemerge.

We are underweight duration in fixed income because we believe the Fed is not in a position to cut interest rates, and if it does cut, it would be a mistake leading to higher Treasury yields, which would hurt growth and long-duration assets. We have brought down duration meaningfully and remain underweight until comfortable with the outlook.

We prefer to stay on the sidelines in private credit, especially on the corporate side, due to concerns about liquidity, redemption troubles in some funds, and potential product-contingent events that could affect public markets. We see risks in levered corporate private credit and avoid it for now.

Contopoulos states that "tech is a cyclical sector" and is "incredibly vulnerable" to a growth slowdown accompanied by higher interest rates. He references 2022 as an example of tech underperforming in an earnings recession. Higher rates and a potential growth shock from the energy crisis would compress valuations and hit earnings for cyclical tech names, which have been market leaders. Direction is AVOID. The sector is seen as having disproportionate downside risk if the economic backdrop deteriorates. The energy shock is resolved quickly, growth remains resilient, and the AI investment cycle continues unabated, supporting tech earnings.

Contopoulos explicitly says to be "Underweight long-duration assets, speculative U.S. technology... China we would put in that boat." * Spec Tech (ARKK proxy): High rates discount future earnings heavily; war uncertainty kills risk appetite for profitless tech. * Long Duration (TLT): Inflation = Higher Yields = Lower Bond Prices. * China (FXI proxy): Geopolitical alignment (Iran/Russia/China axis) makes Chinese assets toxic during a U.S. conflict. AVOID/SHORT Speculative Tech, Long Bonds, and Chinese Equities. A sudden deflationary bust or peace treaty could spark a massive "dash for trash" rally in speculative assets.

Contopoulos advises investors to be "Overweight shorter-duration assets, companies that pay dividends, value." With the 10-Year yield rising (prices falling) due to war-induced inflation, long-duration assets get crushed. Short duration (SHV) removes interest rate risk. Dividend growers (VIG) provide equity exposure with a cash-flow buffer that acts as an inflation hedge, unlike speculative growth stocks which rely on distant future cash flows. LONG Short-Duration Cash & Dividend Growth. Yields plummeting (bond rally) would cause short-duration cash to underperform long-duration bonds.

"Profit growth throughout the world is quite strong... I'd rather own an area of the market that is growing earnings from 2% to 5% to 10% than own something with 12% steady state [US Tech]." The US market is priced for perfection with declining growth rates. International markets (Europe, Japan, EM ex-China) are seeing *accelerating* earnings growth and trade at cheaper valuations. The "Great Rotation" is driven by a search for accelerating fundamentals, not just value. LONG International Equities (specifically Europe, Japan, and EM ex-China). A sudden resurgence in US Tech earnings growth or a global recession dampening cyclical recovery.

"Stay away from China, in the bucket of excessive access with poor earnings growth." Despite the rotation into Emerging Markets, China remains uninvestable due to structural issues ("excessive access") and lack of profit growth compared to peers like Korea or India. AVOID China. Major fiscal stimulus from the Chinese government sparking a short squeeze.