Our October results – the calm before the Trump

November 11, 2016

October was spent in the shadow of US presidential elections. Stock markets were flat or slightly negative, and we are seeing increased performance disparity between individual sectors. Despite these headwinds of uncertainty, we managed to earn 0.43% for our clients, bringing our year-to-date weighted average gain to 10.5% after fees.

Our positive performance in October was mainly attributable to stable performance from our fixed income investments, as well as strong performance by some tech stocks that we own in some of our more aggressive portfolios.

Market consensus in October was that the US FED will be raising rates in December. We were – and continue to be - aligned with this consensus and as such we took some profits on some long term bonds that we expect to experience above average pricing pressure in a higher rate environment. In addition, we continue to doubt OPEC’s resolve to agree on production cuts.

Thus, we continue to be underweight the energy sector. Our distrust of OPEC has been validated by a weakening oil price.

Going forward, we remain cautious regarding a rate increase from the FED. As such we are shifting our attention to shorter bonds that should experience smaller price fluctuations.

In November Donald Trump won the US presidential elections. Yields jumped and bond prices fell. Emerging markets were hit particularly hard based on Trump’s anti-trade rhetoric and a stronger USD. This was not the result that we had anticipated, but our overweight positions in biotech, healthcare and Japanese equities have helped to offset weakness in the bond market. We expect continued volatility, and will be looking to add select oversold positions to our investment portfolios. 

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