- US markets extended their early 2019 gains, helped by the end of the government shutdown, optimism surrounding trade talks with China, and the expectation of a pause in increases in interest rates. The S&P 500 rose 3.2% in February, the broader Russell 2000 (a measure of small company US stocks) grew 5.1%, and the Nasdaq Composite added 3.4%. (February 2019 Review and Outlook, Nasdaq Market Intelligence Desk, March 1, 2019)
- Globally, emerging (particularly Asian) markets benefitted from the perception of trade talk progress, along with stimulus announced by the Chinese government. Europe, however, is showing signs of weakening economic data and the drawn-out “Brexit” negotiations. In February, the MSCI World Index was up 3.1%, the MSCI EAFE (developed markets) 2.6%, and the MSCI EM (emerging markets) 0.2%. (Market Review, JP Morgan Asset Management, March 1, 2019)
- Fixed income assets saw the inverse of the positive risk outlook, with prices falling as yields rose modestly. The 10-year Treasury yield rose 8 basis points to end the month yielding 2.71% The Bloomberg Barclays Aggregate Index (which tracks US investment grade bonds) returned -0.61% for the month. (Fixed Income Market Commentary, Baird Advisors, March 1, 2019)
INVESTMENT STRATEGY REVIEW
- 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 March, managed futures, domestic large cap equities and frontier market equities all moved above their 200 day moving average. As a result, we moved 23% of the total portfolio value out of cash and back into the above-referenced asset classes. The strategy now has 31.5% in 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 March, our three momentum asset classes stayed the same, as they continued to exhibit positive momentum throughout the month of February. The strategy remains invested evenly in real estate, gold and gold miners.
- 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 March, each of the “canary” assets exhibited positive momentum, so the strategy is now invested evenly in the S&P 500 Index, domestic small cap equities, and real estate.
- Our All Weather with Momentum strategy combines All Weather with Momentum: any cash in excess of 10% in our All Weather strategy is invested in the Momentum asset classes. This month, the momentum purchase was 7.17% into each of the momentum asset classes – real estate, gold and gold miners.
To see our full March 2019 Tactical Strategies Report: