November. Market overview
December 09, 2016
Last month was a very eventful month that saw drastic moves in all major asset classes.
Following Donald Trump’s victory in the US presidential elections, market sentiment changed not over weeks or months, but over hours and days. The vast majority of mainstream media and sell side analysts were dead wrong in their predictions - both in predicting who would win and in how financial markets would react if Trump won.
In the days that followed Trump’s victory, markets showed that investors are expecting heavy spending on infrastructure, tax cuts for both companies and individuals, and less onerous government regulations. As such, many sectors rallied strongly for several days, and all major US stock market indices reached new highs. It remains to be seen which of these policies are actually implemented and to what degree, but in the meantime it would be foolish to fight the tape.
We had endeavored to position our clients’ portfolios so that we would not face inordinate risk from any possible outcome of the US election. We were expecting some pressure on bond prices in anticipation of the announcement of higher rates at the FED’s December meeting, but did not anticipate the extent to which yields would rise and bonds would sell off in the present ‘risk on’ tidal wave.
As a result, our overall performance in November was -1.29%, and our year-to-date average weighted return slid to 9.08% net of fees.
Going in to December, we are expecting the USD to give back some of its recently gained strength. That has already started to occur. We are also beginning to see signs of recovery in Emerging Market bonds.
As US equities reach new all-time highs, we are turning our attention to what we deem more attractively valued securities, such as European and Emerging Markets equities. Sentiment has veered towards many previously under-owned sectors, and the speed of the rotation into cyclical stocks has been astounding. We will not be chasing overbought sectors and have been busy identifying stocks and sectors that we believe will continue to experience sustained growth and buying momentum going forwards.
Since the start of December, our decisiveness and agility in repositioning ourselves in this very different market scenario has already started to reap rewards, and we look forward to closing out this calendar year with our highest returns to date.
Despite losing ground in November, we would like to point out that since the start of 2015, we have considerably outperformed all major indices (ETFs) against which we compare our returns: the S&P 500 Index (SPY US), the Bloomberg Barclays Capital Aggregate Bond Index (BND US), and the JP Morgan Emerging Markets Bond Index (EMB US). As such, our total return net of fees since the start of 2015 stands at 13.91%.