Market volatility and autumn’s forecasts

October 20, 2016

After seven months of positive performance, we suffered a slight overall loss of –0.1% in September. Record highs in S&P 500 at the beginning of the month were followed by jittery markets as investors began to position themselves for the end of the third quarter of 2016. Uncertainty regarding the US presidential elections and US FED continue to contribute to short term volatility.

As we expected, the FED did not raise rates in September’s meeting though it was stressed that a rate increase is possible this year. It is most likely that the FED will not act until after presidential elections, and markets seem to be positioning themselves for a December rate hike.

The first official debate of the US presidential elections was allegedly won by Hillary Clinton and that was well received by capital markets. We expect further ‘noise’ from election debates, news stories, leaks etc. to contribute to further volatility.

In September, we did several things that influenced our overall performance. We increased and initiated some new positions in technology stocks in our growth portfolios. We also exploited bouts of relative weakness in Emerging Markets debt by increasing allocations across all mandates. Moreover, our chosen Emerging Market funds are currently trading at a discount to their net asset value which theoretically provides us with an additional margin of safety - as well as possible outperformance - for this particular asset class.

Going forward, we remain cautious regarding the FED base rate. As such we currently prefer not to initiate new positions in long maturity debt, as our base scenario suggests that we will see a rate increase sooner rather than later. October will be an interesting month due the start of reporting season. As always, we will diligently review and assess forthcoming results for any warning signs or opportunities.

Thank you for your continued trust and support!

Pauls Miklaševičs
on behalf of the Baltikums Bank Client Portfolio Management Team