The fund was down -4.39% during the month as losses in currencies, indexes and fixed income weighed on performance.
US equity markets continued to look rocky but ultimately ended the month slightly higher. We have seen continued outperformance of utilities and health care as risk sentiment remains weaker than normal. In the international markets, China outperformed and ended the month nearly 7% higher as trade tensions subsided during the month. The U.S. Federal Reserve began indicating a slower pace of interest rate hikes which sent yields lower and soothed markets towards the end of the month.
Currencies had been in a strong dollar uptrend but outperformance by emerging market equities and reduced expectations from the Fed sent the U.S. dollar lower versus some key counterparts including the Australia and New Zealand dollars. Significant market moves in commodities added to the uncertainties across macro themes, with crude oil falling by more than 20%.Performance (as of 11/30/2018)
There is no reprieve in sight for markets. A year that has tested the resilience of traders shows no signs of calming. As we head into the final month of a volatile year, many of the same themes remain; particularly the ongoing geopolitical tensions between the U.S. and China. To make the investment landscape more complicated, market participants are looking at rhetoric from the Federal Reserve through a microscope.
Headline chasing and nuanced interpretation of monetary policy are common place when markets have a sense of unrest. However, in environments like this, a core focus on systematic risk management is required. While we have had short exposure to international equities since October, should the U.S. markets continue to breakdown, we are prepared to add shorts in domestic equities as well.
Performance in stock indexes was negative as equities ended the month marginally higher. Emerging markets slightly outperformed developed markets aside from Europe as poor economic data and Brexit concerns remain. Larger losses came from rallies in Hong Kong, Chinese, Spain and Indian indexes while smaller gains were recorded from weakness in German and Taiwanese markets.
Our overall exposure to the equity sector remained nearly unchanged. Our portfolio is flat U.S. equities and short across the rest of the world.
The U.S. 10-year yield reached a seven year high of 3.25% following the midterm elections but ended the month closer to 3% as the Federal Reserve is thought to be slowing the pace of further interest rate hikes. Elsewhere, Brexit concerns pushed yields lower in the U.K.
During the month we opened a new long position in Japanese government bonds and closed a short position in Canadian government bonds. Our overall exposure to fixed income persists at historic lows and remains short U.S. and Italian bonds while long German and Japanese bonds.
The U.S. dollar strength during 2018 has been tied to U.S. equity outperformance and a hawkish Federal Reserve committed to gradual policy normalization. This macro theme was challenged in November as equities sold off and the Federal Reserve hinted at fewer hikes. The U.S. dollar outperformed versus the Canadian dollar and British pound but underperformed versus the Australian and New Zealand dollars.
In currencies, we opened a new short position in Canadian dollar versus the U.S. dollar. Meanwhile we closed short positions in the Australian dollar vs. the British pound and the Canadian dollar. Our overall currency exposure decreased slightly over the period and our current exposure is exclusively long the US dollar.
Volatility persisted in the commodity sector during November. Oil fell by more than 20% as supply concerns were alleviated, meanwhile gold rallied slightly during the month due to dovish interpretations of Federal Reserve comments. Agricultural commodities were hurt as grains rallied on trade war concerns. China is one of the largest importer of US grains.
In the commodity sector, we closed short positions in cocoa and lean hogs while we closed long positions in crude, heating oil, gasoline, gas oil, and kerosene. We initiated new long positions in natural gas and oats and opened new short positions in aluminum and nickel. These adjustments slightly increased our exposure to commodities and the asset class remains our largest risk allocation for the time being.