Inflation is surging again and it’s driving savvy investors to rethink how to manage their portfolios. So, what assets should you buy right now to protect your wealth? On this episode of In the Money with Amber Kanwar, James Davolos, Portfolio Manager and Director of Research at Horizon Kinetics, breaks down why investors need to reconsider everything they know about portfolio construction in a higher inflation world. He explains why a simple “buy gold” strategy isn’t enough, why real assets are still early in a long-term cycle, and why targeting 10%+ returns is essential just to stay ahead of rising prices.
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Loving these summer days until around 8pm when I try to get the kids to bed and they scream, “But the sun is still out!” and I try desperately to explain the seasonal changes of the earth’s axial tilt to my four-year old.
Here are five things to know today:
Status update: Stocks are higher this morning building on gains yesterday as the bull market remains firmly in tact. Oil is retreating this morning, gold continues to struggle. While the S&P 500 was higher yesterday, two-thirds of stocks finished lower and it was tech stocks that held the index in the green. It’s a quiet day.
Issuances are coming: The IPOs of SpaceX, Anthropic and OpenAI have created fears that the additional equity needed to fund those businesses could create a sell-off in the broader market. We’ve had a few guests opine as much on the show. It’s a sexy narrative, but perhaps not one rooted in fact according to Binky Chadha of Deutsche Bank. His team looked at prior issuance cycles to see what happens to the market after. “The conclusion is clear: equity issuance waves typically coincide with strong equity market returns, not market stress,” wrote Jim Reid at Deutsche Bank summarizing the findings. “Investors worry that such supply will need to be funded by selling existing equities. Academic research does suggest that issuance waves are eventually followed by weaker returns — but importantly, those waves can run for extended periods. In fact, equity returns during past issuance upcycles were typically very strong according to our strategists. Across several issuance waves over the past three decades, median equity returns were around 8% over three months and more than 20% over twelve months.”
Maple bonds: Amazon raised a record $14 billion in the biggest Canadian-dollar corporate debt offering ever. It could have raised more with orders totally $28 billion. This beats a record set just just last month when Alphabet raised $8.5 billion in a Canadian bond sale. Part of what is driving these tech companies to find great success in raising money in Canada is a change to the FTSE Canada Universe Bond Index which allowed foreign companies raising Canadian-dollar funds to be included – opening a floodgate of index-tracking investors to own these issues. Of course this is a drop in the bucket of the money needed to build out their AI ambitions but shows the AI financing tentacles are spreading. In the mean time, great for the Canadian banks who are running these deals.
Drug deal: GSK is buying lung cancer treatment biotech Nuvalent in a $10.6 billion deal for a 40% premium to yesterday’s close. This is the first major deal under CEO Luke Miels who is just four months into the top job and the biggest deal for the pharma giant since 2018. Two of the three drugs GSK will be getting as a result of the deal are in late-stage clinical trials and could receive FDA approval later this year. We’ve had several guests bang the drum about patent cliffs from big pharma and the need for M&A. It appears that moment is here. If you want some names, I recommend past episodes with Eden Rahim or Jeff Elliot. It’s an absolutely unloved sector with no investor interest, but deals like this show things are starting to heat up.
Siri gets a brain: Apple shares fell 2% after they unveiled their new AI platform for Siri yesterday in Tim Cook’s last major presentation as CEO. Siri, along with a new dedicated Siri app, will integrate everything across Apple’s ecosystem so users can start and continue tasks across devices. You can ask Siri things like “What movie was my husband talking about last week?” and it will search your text history. The disappointment might be in the availability: not until later this year and not everywhere. There are currently no plans for Europe because Apple said regulators won’t engage with them. “We believe that AI monetization and services will ultimately add $75 to $100 to Apple stock and that is not being factored into the current multiple in our view, and this WWDC was a good step in the right direction as AAPL looks to fill the void in its AI strategy,” wrote Dan Ives of Wedbush.
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