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Bard Malovany

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Our May 2019 Tactical Strategies Report

| May 07, 2019
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MARKET RECAP

  • S. equities retained their first quarter upward momentum in April, largely supported by underlying economic data. First quarter GDP estimates of 3.2% growth were higher than expected and labor statistics suggest a robust hiring environment.  The potential chinks in the armor, however, may be rising inventories and softening restaurant sales, and some question about the veracity of the internal calculations of that GDP number.  The S&P 500 rose 4.0% in April, and has now grown 18.3% YTD through April 30.  (S&P 500 Factsheet, Dow Jones Indices, April 2019)
  • Developed and emerging markets rose in line with the US. Lingering recession fears seem to have been assuaged by above-estimate growth in China and moderate improvements in European fundamentals.  The MSCI World Index grew 3.8%, the MSCI Europe Index grew 5.0%, and the MSCI Emerging Markets index grew 2.6% in April.  (Review of Markets over April 2019, JP Morgan Asset Management, May 2019)
  • Fixed income returns largely displayed the inverse of the equity growth trend, with yields rising (and prices subsequently flat or falling), on renewed US and China growth forecasts, strong global employment trends, and diminished fears of central bank rate interest rate increases. (Monthly Market Commentary, Commonwealth Financial Group, May 3, 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 May, our all weather strategy became fully invested as every asset class closed above its 200 day moving average.  As a result, we moved 20% of the total portfolio value out of cash and into commodities, domestic small cap and international small cap.
  • 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 May, both domestic large and small cap equities continued their strong performances and replaced gold miners and long term treasuries.  The strategy is now invested evenly in real estate, domestic large cap and domestic small cap equities.
  • 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 May, each of the “canary” assets exhibited positive momentum, so the strategy is now invested evenly in the S&P 500 Index, US small-cap equities, and foreign large-cap equities. 

May 2019 Tactical Strategies Report

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