The industrial and energy sectors have been the best performing US equity sectors since the 12/24/18 lows with gains of 21.8% and 19.8% respectively as of 2/7/181. We have been over weight each in our Global Individual Equity strategy during this time frame as we believed sentiment was too bearish and both had fallen to levels where there was more opportunity than risk. With the bounce seen since the lows however, we now believe the risk/return outlook is now better-balanced at best for industrials and energy. As a result, we reduced our exposure to each from an overweight to neutral allocations, and reduced beta within the industrial sector overall. Within our industrial exposure, we sold German conglomerate Siemens (SIEGY) entirely as it had been a poor performer with worries over German and global growth. We also trimmed positions in Cummins (CMI), Delta (DAL) and UPS (UPS) in order to further reduce the overweight. In order to reduce the beta within the industrial exposure overall, we used part of the trimming proceeds to add modest new positions Lockheed Martin (LMT) and Honeywell (HON). In the energy sector, we simply trimmed our position in French integrated Total (TOT) to get the sector exposure down to neutral. We let the net cash proceeds from these trades flow to cash in order to have some additional dry powder in case we see a return of downside market volatility after the quick run up in equities generally year to date. Finally, we hard rebalanced the strategy for all positions to target weights.
As always, we appreciate your confidence in our team and are always available for questions.
Fundamentum Investment Committee
Chad Roope, CFA-Portfolio Manager
Paul Danes, CFA - Investment Committee
Trevor Forbes - Investment Committee
Matt Dunn, CFA - Chief Compliance Officer
1 Morningstar Direct
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