- The economy continues to show signs of both strength and weakness. The four week average for jobless claims fell to 211,500, which is near its lowest point in 50 years. In addition, continuing claims of 1.70 million for the week ended July 20 are also near similar lows. In addition, the US economy added 164,000 in July while unemployment remained at 3.7%. In spite of this, average hourly earnings grew at 3.2% over the 12 month ending in July, which is somewhat lower than the previous quarter shown and lower than in past recoveries. (Envestnet PMC Weekly Market Review; Aug 5, 2019)
- As a result of these concerns and other economic (and perhaps political) data points, the Federal Reserve cut its target rate on Federal funds by 0.25% on July 31st. This is the first rate cut in more than 10 years and signaled to the market concerns about the economy’s ongoing expension. (Envestnet PMC Weekly Market Review; Aug 5, 2019)
- July saw modest gains in both bonds and US stocks, with modest drops in International and Emerging Market equities, commodities, and continued strength in gold (Morningstar).
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 August, no changes to the allocation occurred as no asset class crossed above or below their 200 day moving average. As a result, we continue to hold 16.5% of the total portfolio value in cash with managed futures and commodities still sitting below their 200 day moving averages.
- 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 August, we saw both gold miners and long term treasuries continue to perform, exhibiting positive momentum scores and subsequently replacing the domestic large cap equities and real estate. The strategy is now invested evenly in long term treasuries, 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. The strategy employs a set of “canary” assets whose momentum dictates whether the strategy is “offensive” or “defensive” in that month. If any of the canary assets shows negative momentum, the strategy becomes defensive for the month and moves into the one bond asset with the most momentum. If the strategy is offensive, it invests in the three asset classes with the highest momentum. For this strategy, momentum is calculated by taking the 1, 3. 6 and 12 month trailing returns and multiplying by 12/19, 4/19, 2/19 and 1//9, respectively. For August, multiple “canary” assets exhibited negative momentum, pivoting the strategy from our three offensive asset classes to our single defensive asset class experiencing the greatest momentum. The strategy is now fully invested in long term treasuries.