The Managed Futures Strategy Fund posted positive returns in July in all four major sectors traded.
Currencies were the best performing sector for the month, led by gains in long US dollar and Japanese yen positions. While a dovish Federal Reserve would often be accompanied by a softer dollar, global economic weakness and the pursuit of higher yielding assets steered investors towards the safety of the US dollar. Short Australian dollar and Euro currency exposure benefitted the portfolio as the Royal Bank of Australia cut their benchmark rate in July and indicated more to come. In Europe, the ECB tweaked its policy language to reflect lower interest rates and renewed asset purchases. Selling pressure drove the euro to a seven-week low against the dollar when ECB President Draghi stated the outlook for the economy is getting worse. Meanwhile in the UK, after being elected as successor to PM Theresa May, Boris Johnson targeted an October 31st Brexit deadline, whether a deal with the EU is in place or not. The ongoing fears of a disruptive Brexit dropped the British pound to its lowest level in two years against the USD.
As expected, our long global fixed income positions reacted positively to the lower yield environment. While US bonds settled the month in negative territory as the Federal Reserve kept interest rates on hold at their June meeting, Australian, German, Italian and British bonds all rallied due to falling yields and the poor outlook for the global economy.
Following the same theme that we witnessed in currencies and bonds, equities also finished the month higher. The key contributors were long positions in Australian and Dutch Indexes, as well as the S&P 500 Index.
In commodities, grains provided the largest positive performance. Unresolved trade wars between the US and China significantly weighed on wheat and bean prices, which was beneficial to our short positions. In softs, short coffee has been a profitable trade with prices hitting a six-week low during the month as frost risks have diminished in Brazil. Our lone negative sector for the month was meats due to rising feeder cattle prices.Performance (as of 6/30/2019)
With positions in seventy markets at month end, the portfolio is fairly balanced across sectors. We continue to have a slight bias towards higher US dollar and equities and long fixed income remains our largest exposure by sector. In an environment leaning towards accommodative central banks and renewed quantitative easing, we would expect stock and bond positions to continue to rally. Meanwhile, our long dollar stance may continue to outperform as the US remains a higher yielding currency. In commodities, the portfolio is net short, particularly in grains and softs while holding a long gold position and flat crude oil and its products. Although our exposure is light in commodities currently, we have seen trends develop quickly in these markets, which would add more diversity to our portfolio.