Our weighted average return after fees

Our weighted average return in March was +0.68% bringing our YTD return to +5.08% (net of all fees).

In March, many of the Trump trades (financials, cyclicals, small caps) got hurt as it turned out that not all Republicans are ready to repeal Obamacare, much less replace it with Trump’s “World’s Greatest Healthcare Plan of 2017” (yes, this was the actual title!). The failure to pass this new bill cast doubt on just how united the Republican majority actually is, and undermined the market’s confidence in Trump’s ability to push through tax reforms.

The past month’s political events (failed healthcare reform, travel bans of Muslim states, general nonsense…), served to highlight that the United States of America still consists of three independent branches of government: 1) Legislative (The House of Representatives & Senate), 2) Judiciary (The Supreme Court), and 3) Executive (The President). The Founders were very deliberate in their separation of these three branches so that the US Constitution could not be undermined or rendered subservient to tyranny. So far so good.

Returning to capital markets, the FED’s rate hike of 25 basis points on March 15 turned out to be a non-event. The yield on US 10-year notes climbed leading up to the announcement but declined afterwards. This did not surprise us. The more the market experiences these sorts of events, the less it tends to react. The US 10-year yield is currently hovering around 2.35% - the same level it was at a few years ago when the base rate was significantly lower and the FED was in full-on monetary expansion mode. US treasury yields are important because they serve as a reference point to other fixed income securities. Bond yields and bond prices have an inverse relationship. Therefore, continued low yields mean continued high prices in bonds. This is beneficial to our clients that already hold bonds, but makes it a challenge to initiate new bond positions that offer attractive risk/reward dynamics.

Turning to equities, our overweight in technology stocks and European equities continued to add to our overall performance. We have begun initiating positions in European banks (see: European Banks) based on improving European economic data. Looks like we have been a little bit early, but we do not mind increasing high conviction positions on price weakness.

Going forward we expect to see some volatility in European stocks as the French election approaches. Earnings season is about to get under way again and we will be busy analyzing individual company results to ensure that our investment rationales are still on point.

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

Pauls Miklaševičs

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