Our weighted average return in April, 2017

Our weighted average return in April was +2.23%, bringing YTD return to +7.43% (net of all fees).

Earnings season has started and most of the companies in our portfolios that reported their earnings in April traded up strongly – most notably Amazon Inc. and Alphabet Inc. Both are currently trading at all-time highs, as are the major US stock market indices. We sold Amazon after earnings and thus increased our cash holdings. We might have to buy Amazon shares back at higher prices, but at the time being we prefer to err on the side of caution.

In April, the first round of the French presidential elections resulted in Emmanuel Macron and Marine Le Pen advancing to the second and deciding round. This time the polls proved to be quite accurate. European markets had been volatile in the days leading up the election, but responded jubilantly following the result – especially European banking stocks. This made us very happy. In last month’s commentary, we mentioned that we had initiated positions in European financials. We said that we might have been a bit too early. As it turned out, we really were just “a little bit” early, and our positions in EU financials delivered very strong results. For example, our holdings in UniCredit Group (UCG IM) jumped over 15% in the two days following the French election results.

April was not a normal month – both stocks and bonds delivered very good results. Despite positive economic data, the US 10-year treasury yield proved to be very stubborn and refused to go meaningfully higher. As we have written before, low yields/high bond prices are great for our existing positions, but it is difficult to find new bonds with attractive risk/reward profiles. One of the signs that the low yield era may be ending is that more and more junk bonds are being issued at very low absolute yields. We regularly review new issues, but are very selective when entering new positions. That being said, we have managed to land some new issues at high yields that have performed extremely well as the continued demand for yield drives up prices on the lower end of the ratings spectrum.

This month we will continue to dive deep into corporate earnings to ensure that our investment theses are still intact and to try to spot new trends and opportunities. We expect that Emmanuel Macron will win the French presidential election, and that European economic data – especially business and consumer confidence – will continue to improve.

As you can see from our performance graph, our average returns both this year, as well as since the start of 2015, are beating the performance of US stocks, US investment grade bonds and emerging market bonds. Given the broad asset mix of our client portfolios, our results currently verge on statistical improbability. However, our formula has been, and will continue to be very simple:
1) pick good stocks and bonds that allow us to deliver our target returns,
2) target asymmetrical upside return, and
3) cut losses to protect capital.

Feel free to contact us if you would like to hear more about our investment strategies.

On behalf of our client portfolio management team, I thank you for your continued trust and support!

Pauls Miklaševičs

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