- Domestic markets continued to test all-time highs in September, with the S&P 500 ending the month up 0.6%, posting its largest quarterly gain since 2013 and bringing year-to-date growth to 10.6%. Investors are tuning out the constant political noise and remain focused on strong economic fundamentals and earnings growth. (Market Perspective, AIG, September 2018)
- Worldwide, in 2018 the US has drastically outperformed both Emerging Markets – the MSCI EM index declined 0.5% in September and 7.7% year-to-date – and Developed Markets – the MSCI EAFE index has shrunk 1.0% year-to-date despite 0.9% growth in September – as ramping tariffs and a stronger dollar are discouraging global risk-taking. (Market Monitor. Goldman Sachs, September 2018)
- As expected, the Fed hiked interest rates 0.25% at its September meeting, and most observers expect additional, similar hikes throughout 2019. While a vote of confidence in the economy, this has amplified the effect of lifting short-term versus long-term US Treasury yields, which when measured produces a “flattening” curve – with 2-year notes ending September yielding 2.81% and 10-year notes 3.05%. (Global Weekly Commentary, BlackRock, October 2, 2018)
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 October, no asset class crossed above their 200 day moving average however Core Domestic Bonds, Long-Term Treasury Bonds and Treasury Inflation Protected Securities crossed below theirs. As a result, we moved a combined 14% of the total portfolio value out of fixed income and into cash. The strategy now has 53% 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”). We define momentum as the average of the index’s latest 1, 3, 6 and 12 months total return. For October, commodities overtook real estate as one of the top three asset classes currently experiencing the greatest momentum. The strategy is now invested evenly in domestic large cap equities, domestic small cap equities and commodities.
- 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 purchases were 14.33% into each of the momentum asset classes – domestic large cap, domestic small cap and commodities.
To see our full October 2018 Tactical Strategies Report: