Current Portfolio Positioning

What should portfolios look like today from a more macro-oriented perspective? Not based on what’s worked in the past, but what’s most likely to work going forward.

Here we’ll first look at what’s happened to this point and what that means going forward.

(Note that this is my own personal perspective and is not financial advice.)

Key Takeaways – Current Portfolio Positioning

• Long gold (core, strategic)
• Underweight USD real exposure
• Short long-duration bonds
• Curve steepeners
• Underweight US equities
• Overweight non-US and EM equities
• Cautious/short credit
• Avoidance of illiquid, levered assets
• Preference for liquidity (better optionality)
• Diversification across money types, geographies, assets, and asset classes

Why Extrapolation Is Risky

Most of the financial headlines are about equity performance, but little attention is paid to the drivers of those returns.

There’s some focus on earnings and whether they’re getting more expensive/cheaper (i.e., multiple expansion/contraction), but not enough attention is paid to how the value of money changes over time.

When currencies weaken, asset prices measured in those currencies often appear stronger than they truly are. 

For example, let’s say a homeowner buys a home for $200,000 and 30 years later the home is worth $500,000.

The home looks like it’s gone up in value 2.5x. But if inflation has been 3% per year over that time, that $200,000 is simply the equivalent of $485,000 now as far as buying power. Add in carrying costs and other expenses (e.g., transaction costs), then it’s a loss.

This near-singular focus on nominal outcomes can obscure the real sources of returns and distort portfolio decision-making. 

In this environment, measuring performance across multiple currencies and in real terms becomes important, as it reveals which assets have actually preserved or increased purchasing power.

For example, in 2025, the strongest returns didn’t come from US equities, but from assets tied to harder forms of money and from markets outside the US. 

Those optimized for being in the US – since that’s what’s worked best looking backward – would have still done well measured in dollar terms, but would have underperformed.

Their performance ultimately lagged meaningfully when looked at through the lens of better-performing currencies, especially gold, and real purchasing power. 

In contrast, non-US equities and real assets benefited from capital reallocation, currency shifts, and relative valuation advantages. (Earnings are often cheaper in other markets.)

This divergence matters because it shows a broader rebalancing of global capital rather than a one-off.

At the same time, bond markets have delivered misleading signals. Nominal returns have appeared positive, yet the real value of long-duration debt has deteriorated as the purchasing power of money declined. 

With large amounts of sovereign debt set to be refinanced and central banks inclined to ease financial conditions – lowering real interest rates, making their debt and currency less attractive – the risk-reward profile of long-term bonds has become increasingly asymmetric. 

The probability of further yield curve steepening suggests that duration risk remains elevated, particularly at the long end of the curve.

Equity markets also face a more challenging forward outlook. 

Valuations are elevated, credit spreads are compressed, and expected returns implied by current prices and productivity rates are historically low. 

Much of the recent performance has been driven by falling discount rates and expanding multiples rather than by sustainable improvements in long-term productivity. 

When risk premiums are this thin, even modest increases in interest rates or economic volatility can have outsized effects on asset prices.

These dynamics point to a shift in how portfolios should be structured. Concentration in a single country, currency, or asset class increases vulnerability when the value of money is unstable and political and geopolitical risks are rising. 

Greater diversification across geographies, currencies, and types of assets becomes more important than maximizing exposure to the most popular trades of the previous cycle – e.g., US equities, US 60/40, tech/AI.

Liquidity also matters more at this stage. 

Illiquid investments that rely on cheap financing and stable capital markets face growing pressure as refinancing costs rise and risk appetites fluctuate. 

Looking forward, rather than extrapolation of past results, portfolios that diversify across multiple returns streams, multiple asset classes, multiple currencies, and multiple geographic regions are the most likely to weather anything thrown at them rather than being in on past winners. 

That means emphasizing real return potential over nominal gains, reducing exposure to longer-duration risks to lessen the influence of drawdowns, broadening global diversification, and maintaining sufficient liquidity so it’s easy to reallocate as necessary. 

In periods when the value of money and credit, politics, and geopolitics are all in flux, the primary objective is not to chase what’s already worked, but to position for the structural forces that are most likely to shape returns in the years ahead.

The Changing Value of Money

As mentioned, nominal gains are what’s visible, but they’re misleading.

The value of money is dependent on its buying power, so even though we paid $1.50 for a Big Mac back in the day and now it’s $8+ in some places… it’s still the same Big Mac. 

Its intrinsic value hasn’t changed. It isn’t better; we aren’t getting more food. The currency’s value has simply declined.

That’s why it’s important that we frame wealth in real terms (after-inflation and all-in costs) and not just look at the headline nominal amount.

Over recent history, while many investors focused on nominal gains in domestic markets, the more important story was how different currencies performed relative to one another and how those shifts altered real returns, capital flows, and purchasing power.

Measured against other major currencies, the dollar weakened over the course of the year. It declined modestly against the Japanese yen, fell more meaningfully versus the euro and the Swiss franc, and depreciated sharply relative to gold, the “hardest” of the bunch as it can’t be printed and is nobody’s liability. 

This pattern showed a broader trend in which fiat currencies generally lost value, but at different rates, with those with weaker monetary and fiscal positions experiencing larger declines. 

Because currencies are always priced relative to one another, sometimes the level of debasement isn’t obvious. But these moves reshape global wealth distribution and incentives for market participants. 

Assets held in depreciating currencies appeared to rise in price, even when their real value was flat or falling.

This dynamic becomes more obvious when asset performance is measured in benchmark currencies rather than solely in dollars. 

US equities, for example, delivered strong nominal returns for dollar-based investors, yet those same returns looked far less impressive when translated into stronger currencies. 

For investors measuring wealth in euros or Swiss francs, US stock gains were muted, and for those benchmarking against gold, returns were sharply negative. 

In contrast, assets priced in or linked to stronger currencies preserved more real value, even if their nominal performance appeared less dramatic.

Bond markets showed a similar pattern. Long-term government bonds generated positive nominal returns in dollar terms, but once adjusted for currency depreciation, their real purchasing power declined. 

Because bonds are promises to deliver fixed amounts of money in the future, their true value depends heavily on the stability of that money. When the value of currency erodes, bondholders effectively receive less in real terms, even if prices rise and yields fall.

These outcomes show why the value of money is foundational to investment analysis. 

Money is the measuring stick used to assess all assets. When that measuring stick changes, comparisons based solely on nominal prices become misleading. 

Moreover, for policymakers, if they can protect what people can see – e.g., nominal asset prices that people care about – and bury the problems in other ways (subtly depreciate the currency), you can spin a narrative to the public that sounds credible. 

Currency movements affect inflation, trade competitiveness, capital flows, and the relative attractiveness of different markets. 

They also influence who gains and who loses wealth, often with important economic and political consequences.

So, in an environment where currency values are shifting, it’s important look beyond surface-level returns.

Evaluating assets across multiple benchmark currencies and in real terms provides a clearer picture of true performance. 

Ultimately, understanding the value of money is essential because it determines whether apparent gains translate into genuine purchasing power or merely reflect the illusion created by a weakening currency.

Other Important Themes Occurring

Some other important themes we’ll touch on:

1. Debt and monetary dynamics

A central theme is the interaction between high debt levels, monetary easing, and the above-mentioned declining real value of money.

Large fiscal deficits, refinancing needs, and accommodative central bank policy are portrayed as forces that support nominal asset prices, but most investors are much less sensitive to the fact that they erode real returns.

This dynamic favors assets that are less dependent on fixed monetary promises – most notably nominal bonds – and disadvantages long-duration claims on future cash flow – notably, high-multiple equities.

2. Capital reallocation away from the United States

There’s been a meaningful shift in global capital flows away from US-centric assets toward non-US equities, emerging markets, and real stores of value.

This reflects relative valuation differences, currency effects, political risk, and diversification away from concentrated exposures built up over the prior cycle.

3. Valuation and compressed risk premia

Another core theme is that many asset classes are priced for optimistic outcomes.

Equity valuations are elevated, credit spreads are tight, and liquidity premia are low.

When expected returns are compressed, markets become more sensitive to adverse shocks.

This makes forward returns less attractive than past performance would suggest.

Forward equity returns are estimated by combining current earnings yields, expected earnings growth driven by productivity, and changes in valuation multiples, then comparing those expected returns to bond yields and risk premiums implied by current prices.

4. Duration risk

Long-duration assets are vulnerable, especially with later-cycle dynamics (low employment, at or above target inflation).

Whether in long-term bonds, growth-oriented/high-multiple equities, or illiquid private investments, assets that rely heavily on low discount rates are exposed if interest rates rise.

Lots of capital pulls back when safer assets have a quality baseline yield.

2022 was a classic example, showing that even minor rises in rates can hit the longest-duration names the hardest.

5. Liquidity versus illiquidity

Illiquid assets (PE, VC, RE) face growing stress due to refinancing needs, rising financing costs, and potentially mispriced valuations.

Liquidity is valuable for those who are more active and even those looking to reallocate on the margins.

6. Political and social pressures

Domestic political polarization, inequality, and redistribution pressures are forces that can influence profit margins, taxation, regulation, and general confidence about the markets.

Politics isn’t background risk, but as a direct input into market outcomes.

7. Geopolitics and deglobalization

The shift from multilateral cooperation toward unilateral, interest-driven policy is another key theme.

Increased sanctions risk, protectionism, military spending, and geopolitical tension contribute to higher unknowns, reduced demand for certain assets, and stronger demand for perceived safe stores of value.

Gold increases during such times because there’s less confidence between countries that they’ll honor their payments.

For example, during contentious times, countries can unilaterally decide to not repay their debts to those they have strong enough conflict with.

8. Technology and productivity uncertainty

Productivity gains from technology, particularly AI, are a factor, but how much of those gains will accrue to capital versus labor and how much is already priced into markets?

Technology is a massive source of raising living standards over time and driving investment gains.

But it’s nonetheless a bubble-prone force.

Portfolio Positioning

So let’s get down to positioning.

1. Currencies and Money

Strongly long real money relative to fiat

Long gold (core position, not tactical)

In 2025, gold was the best-performing major market. It’s a reserve currency and the strongest money.

You can also measure other asset classes in gold terms – gold is therefore a numeraire, not just a trade.

Underweight / short weak fiat currencies

• Negative USD, EUR, JPY in real terms
• Expressed via gold vs. fiat and other hard-currency baskets

Also, don’t go crazy with gold just because it recently went up.

This has made the market more expensive.

2. Bonds and Rates

Structurally bearish long-duration bonds

Long-end debt is unappealing. The yields are relatively low relative to the duration.

The main issues:

• Real value erosion
• Large refinancing wall
• Supply/demand imbalance due to high spending relative to intake
• Probable yield curve steepening due to insufficient compensation for duration

Positioning

• Short long-duration sovereign bonds (especially US)
• Curve steepeners (short long-end vs. long short-end)
• Avoidance of most nominal fixed-rate debt
• Preference for:
  • Inflation-linked structures (all else equal), though these still have interest rate risk and governments can also alter the inflation figures to paint a better picture/save money
  • Short-duration or floating-rate instruments

3. US Equities

Relative underweight, hedged and partially short

US equities look good in dollar terms, but we’re not at a point with an equity risk premium of around 0.50% over 10-year bonds, which is sub-10th percentile historically.

In short, valuations are stretched.

Earnings growth is a potential strength, but valuations being where they are doesn’t generally bode well for future returns.

Global benchmarks are likely to perform better.

Hedged equity structures look more appealing.

Market-neutral factor exposure is an option – i.e., long value, short expensive.

Reducing exposure to long-duration equities, like high-multiple-growth and AI can also be prudent.

4. Non-US Equities

Overweight relative to the US

For example, in 2025, Europe, China, the UK, Japan, and emerging markets all outperformed.

65-70 cents out of every dollar of equity investment still goes to US markets despite the US being only around 26% of GDP nominally and roughly 15% in PPP terms.

Longer-term factors support capital rebalancing away from the US.

So, in terms of positioning:

• Long non-US developed equities
• Long emerging market equities

Also, it’s important to be currency-aware. If you’re a US-based investor, it’s okay to not need to be fully currency hedged and to have exposure to other currencies. 

5. Emerging Markets (Debt and Equity)

Constructively bullish

EM equities had a massive year in 2025, up 34%.

Both EM local debt (example ETF = EMLC) and dollar debt (example ETF = VWOB) did well.

EM are beneficiaries of capital reallocation.

Positioning:

• Long EM equities
• Selective long EM local-currency debt

6. Credit

Cautious to negative

• Credit spreads are tight (only about 100bps over US Treasuries)
• Little room for further compression.
  • It doesn’t make a lot of sense for people to not expect compensation for credit risk
• Asymmetric risk skewed to widening

Positioning

• Underweight high-yield credit
• Avoiding levered credit strategies
• Possibly short lower-quality credit or using protection
• Short CDS as an asymmetric hedge (if access)

7. Illiquid Assets (VC, PE, Real Estate)

Explicitly bearish

• Liquidity premiums are artificially low
• Debt refinancing risk is rising
• Many of the valuations aren’t accurate (too high, but not marked to market)

Positioning

• Yield-dependent
• Preference for liquid instruments with optionality

8. Technology and AI

Cautiously negative

• Productivity gains in many respects are real
• In 2025-26, AI is in the early stages of a bubble
• Prices are high and a lot of growth needs to happen to justify the valuations
• Lots of investment is needed

Positioning

• Not outright short AI because prices can absolutely stretch higher, but:
  • Reduced net exposure
  • Relative value trades (value over growth to buy earnings while lowering market beta)

9. Political and Geopolitical Hedging

Positioned for instability

There’s rising sanctions risk, military spending, political polarization, and geopolitical competition.

Reduced foreign demand for US assets is a core thesis.

Positioning

• Long gold as geopolitical hedge
• Diversified global exposure
• Reduced reliance on US-centric assets