Category Archives: Investments

“Markets in Turmoil”

2 months ago we saw a tweet from Charlie Bilello. It was 27th December. The tweet stated that CNBC will be airing “Markets in Turmoil” episode that night. Episodes of this particular show are aired when markets have been falling hard and everyone is scared.

The tweet also included a look back at past occasions when the show was aired and the performance of the S&P 500 index following the episodes.

We’ve updated the table to include the most recent data:

Markets in Turmoil S&P 500 close 1-week 1-month 3-month 6-month 9-month 12-month Up to 2/25/2019
2/5/2018 2649 0.30% 3.70% 2.40% 8.90% 4.30% 5.41% 7.85%
2/8/2018 2581 5.90% 7.40% 6.30% 10.40% 10.60% 7.04% 10.66%
10/11/2018 2728 1.50% 0.10% -4.35% 3.29%
10/24/2018 2656 2.10% 0.90% 0% 6.06%
12/27/2018 2489 -1.59% 7.21% 12.74%

Going back to 2010 the airing of Markets in Turmoil basically has worked as a buy signal. Every single time after the show was aired 6 months later markets were higher, the same can be said regarding periods of 9 months and 12 months.

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OUR JANUARY RESULTS

Our weighted average return in January was +8.22%. Since 2015, we have generated a net return of +38.15%.

In terms of investment strategy performance, our weighted average net returns for January were (a) +2.36% for conservative strategies, (b) +7.64% for balanced strategies, and (c) +11.17% for aggressive strategies.

January was a considerably better month than December. As mentioned in last month’s commentary, US Fed Chairman Powell’s statement that the Fed was “listening closely to markets” on January 4th proved to be just what the market needed to stop panicking about the prospect of rising rates. The partial resolution of the US government shutdown added to positive sentiment, as did more positive dialogue regarding trade tariff negotiations between the US and China. As such, the S&P 500 (SPY US) rose +8.01%, Emerging Market equities surged +10.34% (EEM US) and Emerging Market bonds gained +4.78% (EMB US).

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Emerging Markets Bonds performance when US rates rise

2018 was a tough year for bond investors. US Total Bond Market (represented by BND US ETF) returned -0.1% and Emerging Markets Bonds (represented by EMB US ETF) returned -5.5%.

Looking at last year’s returns, a logical question arose: what should we do with our exposure to Emerging Markets (EM) Bonds? Should we keep our allocation unchanged, reduce or eliminate it and replace it with US Treasuries?

The logical chain of thought dictates that investors require higher rates of return for higher levels of risk. If the FED is increasing rates, increased rates provide an option to have investments in safe government bonds with higher yields than before. It raises the required rate of return for taking higher risks, thus investors require higher yields on riskier assets for example EM bonds. It should also lead to a higher spread between EM Bonds and US Treasuries.

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Apple – The Staple of Luxury

Hello! Here’s a piece by our new analyst Pēteris Celms. Many more to come!

Apple’s Business Model

Apple has every right to the outsized profits it makes on the iPhone. Consumers could buy cheaper Android devices, but they don’t. Why? Because they value Apple’s hardware, or iOS software, or most likely, the ubiquity of the brand and the status that it has come to represent.

If you want the Apple experience, you buy Apple hardware, and in turn, use Apple software. And in order to access the digital content market install any other applications, you also have to go through Apple’s App Store. Apple does nothing to increase the value of Netflix or Spotify subscriptions, among many other digital services from app providers purchased through the App Store, but they charge a percentage for every one of these transactions (e.g. 30% in the first year, 15% every year after that for recurring subscription payments) just because they can, and will continue to be able to do so while ~45% of U.S. consumers, the world’s largest market, carry Apple devices.

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OUR NOVEMBER RESULTS

Our weighted average return in November was -0.96%. Since 2015, we have generated a net return of +38.73%.

In terms of investment strategy performance, our weighted average net returns for November were (a) +0.15% for conservative strategies, (b) -0.09% for balanced strategies, and (c) -2.11% for aggressive strategies.

Markets continued to be extremely volatile in November. The S&P 500 index traded all over the place, giving up -3.83% in the third week of the month, before jumping +4.71% the very next week. By month end, the S&P 500 had gained +2%. Emerging market stocks (+5.07%) finally managed to rally on the back of lower US bond yields, and US investment grade bonds ended the month +0.64%.

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OUR OCTOBER RESULTS

Our weighted average return in October was -3.88%. Since 2015, we have generated a net return of +40.48%.

In terms of investment strategy performance, our weighted average net returns for September were (a) -1.36% for conservative strategies, (b) -6% for balanced strategies, and (c) -2.97% for aggressive strategies.

October was a brutal month. In all of 2017, the S&P 500 index had 12 trading days where the daily change in price exceeded 1%. October had 10 such trading days. The monthly performance for key equity index ETFs were as follows: S&P 500 index -6.91% (SPY US), Euro Stoxx 50 index -8.18% (FEZ US), and MSCI Emerging Markets index -8.76% (EEM). Bonds outperformed equities, but there was nowhere to hide in the fixed income space as well. The Vanguard Total Bond Market ETF was -0.86% (BND US), the iBoxx $ High Yield Corporate Bond index (HYG US) was -1.98% and the JPMorgan Emerging Market Bond index (EMB US) was -2.42%. Ugly numbers. The only safe haven was the US dollar, which increased 2.59% versus the euro.

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OUR AUGUST RESULTS

Our weighted average return in August was +2.67%. Since 2015, we have generated a net return of +39.53%.

In terms of investment strategy performance, our weighted average net returns for August were (a) -0.33% for conservative strategies, (b) -0.71% for balanced strategies, and (c) +7.18% for aggressive strategies.

August was a difficult month for almost all asset classes other than US stocks, as it remains quite clear that international trade tensions have done little to dim US business confidence.

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OUR MARCH RESULTS

OUR MARCH RESULTS

Our weighted average return in March was -1.94%. Since 2015, we have generated a net return of +33.05%.

In terms of investment strategy performance, our weighted average net returns for March were (a) -0.61% for conservative strategies, (b) -1.60% for balanced strategies, and (c)-3.37% for aggressive strategies.

Financial markets continued to experience significant volatility in March and no sector was spared.

The prospect of global trade war, coupled with heightened tensions in Syria meant waking up every morning to new headlines that sent markets into tailspin or euphoria. By the end of the month, ‘tailspin’ had gotten the upper hand.

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OUR FEBRUARY RESULTS

Our weighted average return in February was -3.18%. Since 2015, we have generated a net return of +35.68% with a Sharpe ratio of 1.24.

In terms of investment strategy performance, our weighted average net returns for February were (a) -0.36% for conservative strategies, (b) -3.25% for balanced strategies, and (c)-4.37% for aggressive strategies.

February was a difficult month. January’s euphoria gave way to massive selling across all asset classes and served as a reminder that investing in capital markets is not easy.

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OUR JANUARY RESULTS

We are pleased to announce that our weighted average return in January was +2.07%. Since 2015, we have generated a net return of 40.14% with a Sharpe ratio of 1.56.

In terms of investment strategy performance, our weighted average net returns for January were (a) -0.41% for conservative strategies, (b) +0.64% for balanced strategies, and (c) +4.59% for aggressive strategies.

January was dominated by three major themes: (1) excellent returns in global equity markets, (2) US dollar weakness, and (3) a selloff in US treasuries.

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