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.

Treasury secretary Steve Mnuchin’s comments that a lower US dollar was good for the US economy, coupled with continued positive European economic data, helped push the US dollar to a three-year low against the euro (1.24 USD/EUR). We believe that this trade is somewhat overdone in the near term and expect a reversal.

Positive US economic data led to a sell-off in US treasuries (-1.4%) in anticipation of tighter Fed policy. Higher yields have an inverse effect on the price of bonds and this was the primary contributor to the negative returns in our conservative strategies.

The level of US treasury yields will be important to watch going forward, as higher yields could attract fund flows from other assets. After being dead for a long time, US money market funds have now reemerged as an asset class.

All three of these themes are intertwined by the dual factors of excess global liquidity due to accommodative central bank policies and the resulting return of inflationary forces.

Not so long ago, central banks were so fearful of the possibility of deflation that they used every weapon in their arsenal to try to spur growth and inflation. This is a common theme in world history: fear and desperation leading to short-term decision making that has profound consequences in the future. This may very well end badly, but not just yet…

Global economic data and corporate earnings continue to beat expectations. Trump’s corporate tax bill, which lowers the US corporate tax rate from 35% to 21%, is unabashedly positive for US corporate earnings as well. Europe is finally showing consistently stronger economic data. Inflation is also finally showing signs of a comeback in Europe. For instance, Germany’s largest labour union ‘IG Metall’ just negotiated a 4.3% raise and more accommodating work arrangements. This does not happen in a no-growth environment and should be seen as a potent signal of the coming of the end for negative rates.

Unfortunately, since the start of February we have witnessed a brutal sell-off that has reclaimed many of our January gains. We see this sell-off as temporary and do not see reason to panic. Our theses remain intact and we will be looking to add to discounted positions.

On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!
FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.

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