On Monday (8/5), we cut equities by another 2.5% in our Tactical strategies and used the proceeds to add to intermediate-term, high quality fixed income instruments (see post from 8/2 for more detailed asset class positioning). As we wrote last week, there are many crosscurrents with the global economy that are concerning to us. Since writing last week, we have seen China lower the Yuan and threaten to slow/stop agricultural imports from the US2. US manufacturing and non-manufacturing data weakened further (although still in expansionary stage)1. Global interest rates have plunged, with the US 10-year Treasury falling by around 40 bps over the last week alone1. As of this writing, the 10-yr/3-mo Treasury curve inversion is near 40 bps1. 10-year German Bunds are around -0.60 bps!1 Oil and copper prices have been dropping sharply as have transportation stocks1. High yield bond spreads have been widening1. Unrest continues to spread in Hong Kong, which may prove difficult for China to manage. At this stage, we still think there is time for global policy-makers to respond fiscally (hello Germany!) and monetarily to avoid recession, but we are slipping ever closer. We would likely increase equity exposure and reduce duration should we see the beginnings of policy-makers coordinating global stimulus and/or de-escalating trade issues. Until then, we are concerned volatility may continue and want to position as such.
We want to stress that this is no time to panic (there never is), but it is an environment to be cautious, remain diligent and flexible. For given risk tolerances, we view a significant part of our job as protecting investors’ hard-earned capital. At times, that means being more aggressive with equity exposure. During uncertain environments like the present, that means being cautious and underweight equity exposure. If equity markets turn around and rip higher from here, we will likely lag. We would rather give up some upside from here should that happen in an effort to avoid material downside capture, should events continue to materialize negatively. Should the environment continue to deteriorate, we will offer conference calls for investors as we did last October and November. In the meantime, reviewing risk tolerances, time horizons, and liquidity needs is likely a good strategy.
As always, thank you for your confidence in our team.
Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® - Investment Committee
Trevor Forbes - Investment Committee
Matt Dunn, CFA® - Chief Compliance Officer
2-Wall Street Journal 8/5/19
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.