Dear investors in our Tactical Strategies:
- US equities gained ground in January to recover a substantial part of the sharp falls seen in December, with the S&P 500 gaining 7.9% for the month. Investors were encouraged by the Fed’s indication that interest rate hikes may cease or slow in 2019 based on economic momentum. (Monthly Markets Review, Schroders, Februay 6, 2019)
- Globally, returns largely mirrored those of the US, with the MSCI Emerging Markets index leading the way with a 8.8% month, and the MSCI EAFE (international developed markets) rising 6.6%. China remains area of worry, with trade tensions seemingly weighing on its GDP, which grew at a 6.6% rate in 2018 – its lowest level since 1990. (Review of Markets over January 2019, JP Morgan Asset Management, February 1, 2019)
- Fixed income assets had a positive January, helped by the Fed’s anticipated patience, as yields continued to fall (i.e. prices rose) from their recent highs in spite of the market’s brighter tone. The Bloomberg Barclays Aggregate Index (which tracks investment grade fixed income) rose 1.1% for the month. (Market Perspective, Sun America Asset Management / AIG, February 1, 2019)
INVESTMENT STRATEGY REVIEW
- In our All Weather strategy, we strategically allocate 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 February, following a slight rebound In the market, emerging market bonds, high yield bonds, TIPS, real estate, and emerging market equities all moved above their 200 day moving average, while managed futures fell below. As a result, we moved a net 16.5% of the total portfolio value out of cash and back into our chosen asset classes. The strategy now has 54.5% in cash.
- 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 February, each of the “canary” assets exhibited positive momentum, so the strategy is now invested evenly in emerging market equities, domestic small cap equities, and domestic real estate.
- 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”). We define momentum as the average of the index’s latest 1, 3, 6 and 12 months total return. For February, long term treasuries’ momentum slowed slightly and was subsequently replaced by real estate. The strategy is now invested evenly in real estate, gold and gold miners.
- 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 14.83% into each of the momentum asset classes – real estate, gold and gold miners.
To see our full February 2019 Tactical Strategies Report: