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Fairfax, VA 22031

Bard Malovany

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Our June 2019 Tactical Strategies Report

| June 11, 2019
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  • Escalation of global trade wars, now on multiple fronts, drove US equities to their first negative month of 2019. The S&P 500 dropped 6.4% in May, though it remains positive for 2019 at +10.7%, The trade tensions have dampened long term growth sentiment, with the US Purchasing Managers Index (PMI) – a measure of anticipated domestic manufacturing activity – to its lowest level in 10 years at a slightly positive 50.6. US GDP growth was also revised downward to a 3.1% annual rate, though only nominally so (-0.1%). (Weekly Headings, Raymond James, May 31, 2019)
  • Internationally, markets have mirrored domestic turbulence over trade anxiety and continued to monitor the drawn-out Brexit process and China’s “soft landing” efforts, though economic fundamentals have remained resilient. The MSCI World Index fell 5.7% in May, the MSCI Europe Index fell 5.0%, the MSCI Asia index dipped 8.5%, and the MSCI Emerging Markets index shed 7.2%. (Monthly Factsheets, MSCI, May 31, 2019; Financial Markets Commentary, Northwestern Mutual, May 31, 2019)
  • Fixed income continued its rocky 2019, with the 10-year Treasury yield falling to its 2019 low of 2.17% in May. As of late May, yields on the 3-month Treasury Bill and 10-year Note had inverted, though the closely-watched 2-year / 10-year spread has yet to invert as of month end. An inverted yield curve, which displays greater investor short term confidence, has traditionally been a recession indicator. (Review of Markets over May. JP Morgan Asset Management, June 2019)
  • Our All Weather strategy allocates investments into seventeen asset classes that together have produced consistent results in a variety of economic environments. We analyze the trend of each asset class and invest if and only if its asset class closes above its 200 day moving average at month end. Funds that are not invested are moved to cash. For June, managed futures, commodities, domestic equities, international equities and emerging market equities moved below their 200 day moving average.  As a result, we moved 57% of the total portfolio value into cash.
  • Our Momentum strategy incorporates both absolute and relative momentum. It invests evenly in the three asset classes that are above their 200 day moving averages (“absolute momentum”) and exhibiting the most momentum at the end of each month (“relative momentum”). For this portfolio we define momentum as the average of the index’s latest 1, 3, 6 and 12 months total return. For June, both domestic large and small cap equities fell slightly below their moving averages and were subsequently replaced by core domestic bonds and long term treasuries in the portfolio.  The strategy is now invested evenly in real estate, the domestic aggregate bond index and long term treasuries.
  • Our Risk Managed Momentum strategy is a dual-momentum based investment strategy with vigorous “crash” protection and a fast momentum filter. Dual-momentum combines absolute (trend following) and relative (cross-sectional) momentum.   The strategy employs a set of “canary” assets whose momentum dictates whether the strategy is “offensive” or “defensive” in that month.  For June, three of the “canary” assets exhibited negative momentum, so the strategy is invested in the defensive asset with the highest momentum – long term treasuries (TLT).

June Tactical Strategies Report

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