If I could only buy 2 funds for next year

Despite the wars in Eastern Europe and the Middle East, the risk of war in the Far East is increasing day by day, and the US presidential election is very tense and intense, there has been no global geopolitical risk and uncertainty. This high in a long time

Additionally, the US economy is flirting with recession as the latest jobs numbers show that the labor market is weakening significantly. Consumer debt, including credit card debt, is at record levels. In addition, there is a wave of real estate debt maturing in the coming years that was previously pledged at interest rates significantly lower than interest rates are today. In addition, the US manufacturing sector is currently in recession. Many of the United States’ major trading partners, including Japan, China, Britain, and other European countries, are all either in recession or struggling with their own economic headwinds.

Meanwhile, it also appears that the US is on the verge of a Fed rate cut cycle. Growing signs of economic weakness, along with inflation that at least appears to be in no danger of rising sharply, appear to be paving the way for the Federal Reserve to begin cutting rates. The country is hoping for a soft landing for the economy without raising inflation. Given all the geopolitical and macroeconomic uncertainty, if I could only buy two investments for the next year, they would be:

Investment number 1

The first investment I would buy (which I was already bullish on last year) is gold (XAUUSD:CUR). In fact, last October I informed readers that I was extremely bullish on gold and buying it. Since then, gold has risen:

However, I think gold will continue to offer a very attractive risk reward over the next year, at least for the following reasons.

First, it is a time-tested safe haven that has been a favorite store of value for thousands of years. As a result, it almost always outperforms the stock market during periods of geopolitical and/or macroeconomic turmoil and uncertainty. This is an excellent portfolio hedge should the worst-case scenario occur in Europe, the Middle East and/or the Far East. It also provides protection in the event of political and civil unrest in the United States following the presidential election.

Second, if the US enters a recession and the stock market experiences a severe selloff, gold will likely outperform the stock market.

Third, historically, gold has also often outperformed when the Fed pivots from rate hikes to rate cuts because it is more attractive as a store of value than cash, whose interest rates are falling. will be

Fourth, central banks around the world are buying up gold as part of the ongoing de-dollarization of the global monetary system.

Finally, the US government is running an unprecedented spending deficit. Regardless of who wins the presidential election, it looks like this fiscal irresponsibility will continue. With debt so high, it seems much more likely that confidence and the value of the dollar will decline over time rather than rise against gold. When you put it all together, I think gold will provide a very valuable hedge against risk in the coming year, and over a much longer time horizon, it’s virtually guaranteed to go higher.

There are several ways to gain exposure to this bullish thesis for gold, including blue chip miners such as Newmont Corporation (NEM), Barrick Gold Corporation (GOLD) and Agnico Eagle Mines Limited (AEM), physical bullion, as well as ETFs. gold , SPDR® Gold Shares ETF (GLD), iShares Gold Trust ETF (IAU). At the very least, I think it’s important to keep some bullion in a safe place, as well as some gold ETFs that can provide liquidity. You must also have the potential to make calls or sales to generate income from this position. For those who want to be more aggressive, buy some of the aforementioned miners or streamers like Wheaton Precious Metals Corp. (WPM) is also an attractive way to gain leverage on the price of gold.

Investment number 2

Another investment I would buy for the next year, if I were to buy just two, would be Brookfield Renewable Partners LP (BEP) and Brookfield Renewable Corporation (BEPC). The reason I think Brookfield Renewable Partners will be such an attractive buy next year is that I think it’s a “I’ll win, streak, if I don’t lose much” type of investment, similar to gold. The reason I believe this is because BEP has fallen sharply over the past few years due to rising interest rates. It operates a relatively capital-intensive growth model, and its tight, long-term cash flows are bond-like. Therefore, when interest rates increase, their net present value decreases, and when interest rates decrease, their net present value increases.

As a result, I think BEP is likely to move higher if the Fed actually cuts rates sharply and long-term interest rates come down. This was done when the Federal Reserve cut interest rates following the outbreak of COVID-19.

This is especially true as the stock looks quite discounted on a distribution yield basis, as well as a price to AFFO (adjusted funds from operations) and yield plus growth basis. Its distribution yield is around 6%, its expected AFFO growth per unit CAGR is around 10% over the coming years, and its price-to-AFFO valuation trades at a steep discount to its historical averages. As a result, investors can expect mid-teens annualized total returns from yield plus growth alone without factoring in valuation multiples.

Even if interest rates do not fall significantly and inflation remains persistently high, thereby tying the Fed’s hands on how much to cut rates, the BEP has a very strong balance sheet. It has a BBB+ credit rating, long-term debt maturities with little short-term maturities, and substantial liquidity. In addition, the vast majority of its cash flows are indexed to inflation and contract. This means that in a “high for longer” inflation and interest rate environment, it shouldn’t suffer much on a cash flow basis. It should be completely safe to distribute and should still be able to grow at a solid clip. This is largely thanks to a large development pipeline and significant deal flow through its external management by Brookfield Asset Management Ltd. A very active base

Additionally, if Democrats win elections this fall, renewable energy stocks are likely to move higher, as they did in 2020 and early 2021 after Democrats took office. Meanwhile, even if the Republicans win the fall election, BEP should still do well because it will enjoy the tailwinds of lower interest rates and its development pipeline and contracts give it a very secure cash flow. Furthermore, even as Republicans promote policies that are less favorable to renewable energy, the BEP has just signed an agreement with Microsoft Corporation ( MSFT ), a company ideologically dedicated to investing in renewable energy. This should provide BEP with significant growth potential for many years to come alongside its existing development pipeline and numerous opportunities to invest in the many international markets in which it operates.

Finally, the political winds are likely to blow in their favor at some point along the US line as well, giving their growth band a further boost.

Investor proposal

While none of these investments are without risk and it’s very difficult to predict how an investment will perform over a one-year period, gold and BEP seem to do almost as well as other investments over the next year. Of course, I tend to take a long-term view in most of my investments. Therefore, the vast majority of my portfolio is formed with a 3-5 year horizon rather than a one-year horizon. But for investors looking to increase their chances of success in the short term, it’s worth taking a closer look at gold and BEP.