Astoria Portfolio Advisors CEO John Davi joins Yahoo Finance Live to explain how investors should approach ETFs in 2023 and how inflation and other economic data will factor in.

Video Transcript

DAVE BRIGGS: While the markets await CPI data for the month of December on Thursday, investors are looking for ways to avoid the sting of inflation. So how can you protect your money in this kind of environment? For more, we turn to Astoria portfolio advisor, CEO, and CIO, John Davi, who joins us now for this ETF report sponsored by Invesco QQQ. Good to see you, sir. So before we turn to the ETF PPI, let's talk about what your expectations are for inflation, this all-important read tomorrow.

JOHN DAVI: Sure. I think that we'll have a softer print. I mean, the trend has been lower. If you look a lot of the forward-looking indicators, they've been all softening on the margins. So CPI kind of being lagged, historical, I think my expectation is that we'll have a lower print. So the consensus is at 6.5. The last reading was 7.1. So it's kind of trending in the right way. And that's what the market wants. It wants lower readings.

SEANA SMITH: And John, do you expect that trend to continue then?

JOHN DAVI: Well, I mean, if I take a step back, so I was pretty bearish going into 2022. I'm not as bearish going into 2023, and here's why. If I think about last year, I felt like the risks to the market were pretty symmetric, meaning that, like, I thought inflation would be higher, rates would be higher. And it was pretty easy as a portfolio manager of what you would need to do in that scenario, right? So you'd underweight bonds, lower your duration. Have inflation fighting strategies like PPI, own alternatives. And that-- I think you would have had a much different portfolio experience.

So we at Astoria had our best year ever last year in terms of how we did managing client portfolios for ETF models. This year, going into 2023, I don't have that same sort of conviction in the sense that, like, I think it's more asymmetric, right? So on one hand, inflation will go lower, and that's good. The bull case is also that things like-- we had this DEFCON 5 moment for stocks last year, right? So the average stock was down 25%. The average tech stock was down 35%. Unprofitable tech down 60%, so it's hard for me to see, like, two back-to-back DEFCON 5 years where the average stock's down 30.

You know, but the bear case for me is that the terminal rate is probably going to stay stubbornly high this year. And if you talk to some Fed governors or if you listen to what they're saying, you know, 4% terminal rate, maybe even 5%. So I think that's a problem. So I think for investors, you kind of have to barbell your portfolio and start to tilt away from the last decade's trade, which is large cap core beta. And that's kind of what we do with PPI. PPI is really, like, an amalgamation of what we think portfolios should be structured going forward.