The fund returned a loss of -2.38% in March, as losses in fixed income and equities offset gains in commodities.
Equities continue to look weak after the volatility in February and amid heightened rhetoric about tariffs and trade wars. All major equity markets ended the month lower. China, Germany and Japan all lost approximately -3%.
Commodities posted mixed results with the energy complex generally strengthening along with gold. However, base metals weakened amid ongoing protectionist fears. Oil ultimately rose on the back of uncertainties in the Middle East and supply concerns in the United States. Brent crude closed more than +5% higher while gold traded in line with risk sentiment related to tariffs and a weaker U.S. dollar.
Despite a rate hike from the U.S. Federal Reserve and some hawkish comments from the Federal Reserve, the dollar generally weakened. The British pound sterling was a notable outperformer as the United Kingdom and Europe reached a draft Brexit deal that included a 21-month transition period. This saw the sterling rise by more than +1% versus the U.S. dollar.Performance (as of 3/31/2018)
Markets are in a “wait and see” mode in a number of areas with new geopolitical tensions testing the resilience of equities. Trade wars are of concern to investors for several reasons. First, the implications may cause sharp price reversals in the market with immediate effects – most recently, steel and aluminum. Second, tariffs often provide more questions than answers. The long-term impact at the market level remains to be seen.
While investors wait for further clarity and new developments, we remain focused on our commitment to robust risk management. The first quarter of the year has taught many market participants an important lesson – things change quickly. Conditions are testing many assumptions on market correlations and risk management. We remain committed to our disciplined, rules-based strategies with a relentless focus on risk management.
Following an unsettling February, equities continued to falter in March. German and Japanese markets each weakened by nearly 3%, however emerging markets, with the exception of China, generally outperformed. In the United States, the ‘FANG’ stocks (Facebook, Amazon, Netflix and Google) weakened significantly because of data privacy concerns.
We closed a long position in the Indian Nifty Index and our overall exposure to equities continues to decline.
Global fixed income generally rallied due to concerns about potential trade wars and an expected 25bp hike from the U.S. Federal Reserve. In Europe, an inconclusive Italian election and ongoing Brexit negotiations were key drivers of fixed income yields. Geopolitical uncertainties drove the macro themes within the sector domestically and abroad.
We opened new long positions in Japanese Government Bonds and closed long positions in EuroSwiss futures. Our overall exposure to fixed income remains stable.
Despite a hawkish tilt to the December “dots” from the Fed and a stronger-than-expected employment number, the U.S. dollar weakened versus British pound sterling, euro and Japanese yen. The selling pressure ebbed slightly towards the end of the month as Treasury Secretary Mnuchin said he was “cautiously optimistic” that the U.S. and China could reach an agreement on trade.
We closed long positions in the Canadian dollar versus the U.S. dollar, and the euro versus the Japanese yen. We closed short positions in the U.S. dollar versus the Swedish Krona and opened long positions in the Mexican peso versus the U.S. dollar. Our overall risk in currencies remains stable with a bias for a weaker U.S. dollar.
Oil strengthened with a surprise decline in U.S. inventories towards the end of the month. In metals, gold benefitted as geopolitical tensions spurred investors to seek traditional safe havens. Even so, palladium and aluminum weakened significantly. In agricultural commodities, sugar weakened by approximately 7% and lean hogs strengthened by more than 16%.
We established new long positions in cocoa and new short positions in lean hogs, cattle, oats, palm oil and Tokyo platinum. Meanwhile, we closed short positions in wheat and London cocoa. We also closed long positions in Tokyo gold and lead. Our overall commodity exposure increased slightly in March.