|Model / Changes / Holdings||As of 2/5/18|
|Tactical Fixed Income
Sell Vanguard Total International Bond ETF (BNDX)
Buy iShares Floating Rate Bond ETF (FLOT)
Holdings: SJNK, SRLN, HYD, CWB, and FLOT
|-1.2% wk||-0.8% ytd|
|Global Multi-Asset Income
Sell PowerShares S&P High Dividend Low Volatility ETF (SPHD)
Buy WisdomTree Emerging Markets High Dividend ETF (DEM)
Holdings: SDY, USMV, DEM, HDV, and PBP
|-3.6% wk||-0.4% ytd|
Sell Schwab US Dividend Equity ETF (SCHD)
Sell Guggenheim S&P 500 Pure Value ETF(RPV)
Buy AlphaClone Alternative Alpha ETF (ALFA)
Buy First Trust Dorsey Wright Focus 5 ETF (FV)
Holdings: FV, ALFA, and MTUM
|-4.4% wk||+3.3% ytd|
Most recent new recommendation on 1/29/2018
Holdings: IYT, XES, IYG, and FBT
|-5.3% wk||-2.1% ytd|
Most recent new recommendation on 1/29/2018
Holdings: GREK, THD, EWI, FM, and EWS
|-3.0% wk||+4.4% ytd|
Note: New recommendations recorded at the closing price on the day recommendation is made. You may place trades as soon as you receive this update.
Markets Give Back Some of January’s Returns
World markets experienced one of the largest sell-offs in the last two years last week. The Dow fell 4.1%, while the S&P and NASDAQ 100 fell 3.9% and 3.7%, respectively. Unfortunately, there was no safe-haven asset class, as even bonds and commodities followed equities lower. International Treasurys fared the best, falling only 0.7%.
The market has been overdue for a correction for some time, after having one of the most consistent run-ups in history. While we’re not yet in correction territory, it was time for the market to give some back. The most aggressive asset classes, geographic locations, and sectors fell the most, but no asset class was safe. Even gold fell 1.3% in anticipation of rising interest rates.
The precipitating factor is difficult to determine. It may simply have been investors moving some of their portfolios to cash in anticipation of a drop after the “January effect”—the seasonal increase in stock prices during the first month of the year. Additionally, stocks may have sold off due to the strong earnings releases this season. This may sound counterintuitive, but a strong economy will allow the Fed to further increase interest rates. Increasing rates has been a goal of the Fed for some time, as it currently has little in its arsenal to mitigate any future recession. With strong earnings coming out, the Fed’s desire to increase rates is justified.
Rising interest rates implies as stronger U.S. dollar, which would cause all real assets to fall in value from the perspective of U.S. investors. Additionally, it is bearish on bonds and produces a headwind for the economy as a whole. So, paradoxically, a strong economy may have led to caution going forward for all major asset classes.
This is not to say that the current bull market is coming to an end. Indeed, the market has risen so swiftly, it’s to be expected that some returns would be given back. Overall, the market remains a strong one, and even with rising interest rates, there doesn’t appear to be much concern for near-term economic prospects. We’ll be keeping an eye on the yield curve, which continues to flatten, but so far, the signal from the market appears to be “stay the course.”
Tactical Fixed Income was down 1.2% for the week as the bond markets followed equities down. All positions were down for the week except one. Senior portfolios managed a small gain of 12 basis points, while convertibles were the hardest hit asset class, falling 3.35% for the week.
Global Multi-Asset fell 3.6% for the week as the markets experienced their largest weekly sell-off in about two years. All positions were down for the week. High-dividend equities were down the most, falling 4.49% and 4.29%, depending on the fund manager. Buy-write portfolios lost the least, falling 2.07% for the week.
Factor Rotation was down 4.4% for the week. However, previous gains kept the strategy positive for the year. All positions were down, with Pure Value stocks falling slightly more than the other positions, down 4.78%. Momentum stocks fell the least, down 4% for the week.
Sector Rotation was down 5.3% last week, making it the worst-performing strategy for the week, with all positions falling. Oil and gas equipment and services were down the most, falling a substantial 7.73%. Financial services fell the least, down only 2.32%.
International Rotation fell 3% for the week, with all positions falling. Frontier stocks fell the most, dropping 4.27%. Greece and Thailand maintained the most value last week, falling only 2.10% and 2.19%, respectively.
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