We are pleased to announce that our weighted average return in December was +1.81%, resulting in an annual return of +11.05% for 2016 (net of all fees).
December was a decidedly less eventful and more prosperous month than November. Both equity and bond markets were considerably less volatile than during November’s post-US election madness and US equity indices powered to new highs. As expected, the US FED did indeed raise rates and signaled that there could be up to three rate hikes in 2017.
In terms of our investment strategy, our decision not to overreact to a sell-off in Emerging Market bonds proved correct and our increased equity exposure contributed significantly to our positive December results.
As we start a new year, there seems to be a consensus in the air that 2017 will be a year of uncertainty and many challenges. While we understand the rationale for such a stance (a Trump presidency, rising rates, elections in Europe…), we cannot remember a time when any new year was predictable and without challenges. As such, we remain vigilant in trying to be maximally objective in regularly evaluating our current investment strategies, while trying to identify even better risk/reward opportunities going forward.
Our goal is to generate superior absolute returns for our clients. For most asset managers this means broad diversification and trying to avoid volatility at all costs. Some of the problems associated with this generally accepted approach are 1) correlations breaking down when you need them most, 2) following the crowd, 3) decision paralysis and/or 4) over-hedging.
In order to avoid some of these potential pitfalls, we put a considerable emphasis on opportunity cost. This means actively selecting investments that present the best long-term risk/reward dynamic for each client’s individual investment mandate. It also means delving deeper into what we are actually buying and why, rather than just targeting asset allocations. For instance, it means that good stocks are better than bad bonds regardless of asset class bias.
Although 2016 was a good year, we take even greater pride in the fact that our net absolute returns since the start of 2015 have outperformed the 2-year total returns of the following individual major asset classes: US Large Cap Equities (SPY US), US Investment Grade Bonds (BND US), and Emerging Market Bonds (EMB US). Beating the returns of each of these different asset classes is the best possible validation of our investment strategy, and we look forward to the challenges that await in 2017.
As always, we thank you for your continued trust and support, and wish you a happy, healthy and prosperous new year!