The fund returned 2.17% in April. Profits from commodities, equities and fixed income offset losses in currencies.
Selling pressure in equities eased slightly in April as market participants continue to look for further clarity on the resilience of the equity markets. Global equities rallied broadly, with the United Kingdom and France gaining nearly 6% on the month.
Commodities posted mixed results. The energy complex strengthened as investors continued to focus on geopolitical developments. Brent crude rallied by nearly 7% amid tensions between the United States and Syria. Gold weakened by nearly 1% as trade concerns decreased and the yields rallied.
Yield curve flattening in April gained increasing attention from market participants who interpret an inverted yield curve as a sign of impending equity trouble. As concerns of a trade war with China subsided, yields rallied with the U.S. 10-year note breaking the psychologically relevant 3% level not seen in nearly a decade.Performance (as of 4/30/2018)
As we head into May, a number of macro themes are developing and strengthening. The interplay between the different sectors is quite interesting. Rising energy prices are playing a role in rising treasury yields. A rising U.S. dollar is weighing on some equity markets. There are a number of crosscurrents and markets, like gold for example, that are impacted from the ebb and flow. At different times in April, gold rallied and sold off based on market sentiment, inflation concerns and U.S. dollar strength.
We anticipate the landscape to remain highly connected until a clear macro theme emerges. It’s not uncommon to witness macro themes that impact different markets in multiple ways. However, while we await clarity on geopolitical tensions, the emergence of inflation, and the path of equities, it seems markets will be impacted by a “chicken or the egg” scenario.
We are particularly focused on the impact that rising yields will have on equities and energy markets. Similarly, all eyes are focused on the rising U.S. dollar and the pressure it may provide to the equity markets.
Selling pressure in equities eased as geopolitical tensions with Russia, China and Syria gradually relaxed. In the United States, the energy sector outperformed with the rising price of oil. More broadly developed markets underperformed as a stronger U.S. dollar weighed on emerging market equities.
We closed a long position in the Chinese FTSE A50 during the month, but our overall exposure to equities stayed fairly stable. The portfolio remains long equities in the United States and Asia, but our exposure still remains light compared to year end levels.
Global fixed income generally weakened as geopolitical tensions eased during the second half of the month. Concerns of a trade war with China and hope for improving relations with North Korea allowed yields to break higher in the United States and abroad. The U.S. 10-year note broke above 3% and the 2-year note broke above 2.5% for the first time since the global financial crisis.
Our portfolio did not experience any major position shifts during the month. However, our overall exposure was slightly reduced. We remain short U.S. fixed income with overall fixed income exposure somewhat limited.
The U.S. dollar rallied versus its major counterparts. The euro, British pound sterling and Australian dollars all weakened by nearly 2% versus the greenback. In Europe, shifting rate hike expectations from the Bank of England weakened the sterling. Disappointing economic data from the eurozone weighed on the euro.
We closed long positions in the Australian dollar, Russian ruble and Swiss franc versus the U.S. dollar. We opened new short positions in the Brazilian real and Swiss franc versus the U.S. dollar. Although the portfolio still reflects a bias toward a weaker dollar, we began buying the U.S. dollar versus some counterparts, which is a significant shift from our positioning in recent quarters.
The energy complex continued to strengthen in April as chemical weapons attacks in Syria and the potential for a response from the U.S. made headlines. Later, in the month, supply concerns allowed oil to take another leg higher and ultimately make new multi-year hights. Gold responded to a number of macro headlines regarding mediocre economic data and improving geopolitical tensions and ultimately ended the month slightly lower. Palladium outperformed in the precious metals sector as supply concerns out of Russia boosted the price nearly 2%.
We established a new short position in live cattle and closed a long position in palladium. Our overall commodity exposure increased slightly in April and remains our largest risk allocation for the time being. Energy longs are currently a core theme within the portfolio, with the exception of natural gas.