The summer doldrums have made their appearance this year. The fund was down -2.14% in June. While most of these losses came from short positions in energy and agricultural markets, European fixed income markets were also a moderate drag on performance. Long positions in Asian equity markets were notably profi table, led by China and Taiwan.
The U.S. dollar made little headway in recovering from its anemic performance this year. The dollar is now down 6.4% year-to-date. The Trump administration’s lack of progress in pushing pro-growth legislation through Congress continues to shoulder the blame for the weak dollar. Investors are losing hope that meaningful cuts in corporate taxes and regulation will happen anytime soon, lowering the chance of faster rate increases. The dollar’s weak performance has led to considerable gains for the euro and yen.Performance (as of 6/30/2017)
Crude oil futures are off to the worst fi rst-half percentage performance seen in decades, a byproduct of a global supply glut and OPEC’s inability to stick with production cuts. However, a relief rally did occur in the last week of June, with crude climbing from $42 to $46 per barrel, leading to moderate losses for the fund’s short positions. We are starting to see meaningful downtrends materialize across the energy sector, and stand ready to increase our short exposure should they develop further.
June brought major trend changes in the agricultural sector.
We closed several short positions and opened a new long position in wheat futures prior to a tremendous rally in the second half of the month. In June, wheat outpaced the growth of all other peers in Bloomberg’s Commodity Index on the back of a long dry spell resulting in the worst spring wheat crop in the United States in 29 years. The U.S. Department of Agriculture reported that only 45 percent of the crop was in good or excellent condition as of June 11. Wheat prices may continue to increase in the near future, with drought conditions expected to continue through the summer.SPRING WHEAT OUTPACES MAJOR COMMODITY MARKETS
The indices shown are for informational purposes only and are not reflective of any investment. As it is not possible to invest in indices,the data shown does not reflect or compare features of an actual investment, such as its objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, or tax features.
Past performance is no guarantee of future results.
(Gold) S&P GSCI Gold Index: a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement.
(Oil) CMCI WTI Crude Oil ETC: aims to provide the performance of the UBS Bloomberg CMCI (CMCI) WTI Crude Oil Total Return Index. The CMCI WTI Crude Oil measures the collateralized returns from a basket of WTI Crude oil futures contracts. It is designed to be representative of the entire liquid forward curve of each commodity in the Index.
(Wheat) Bloomberg Wheat Subindex: based on the wheat component used in Bloomberg Commodity Index. The Subindex reflects the movement of the wheat futures contracts.
(Grains) Bloomberg Grain Subindex: index is a commodity group subindex of the Bloomberg CI. It is composed of futures contracts on corn, soybeans and wheat. It reflects the return of underlying commodity futures price movements only and is quoted in USD.
Other significant trend reversals in the soybean complex and corn markets have us wondering if a paradigm shift for food prices is on the horizon. But the commodities story is not all about new trends—the fund did benefit from existing trends in industrial metals, as zinc, copper and lead continued their nearly yearlong rallies.
Although investors largely ignored the Federal Reserve’s warnings of interest rate hikes, similar messages from other central banks spurred price action, resulting in a bond selloff. Bond yields surged at the end of June as investors traded on the news that both Bank of England and Bank of Canada officials said that a rise in rates may prove necessary to hasten global economic recovery.
Analysts expect U.S. treasury bond yields to rise through July based on strong job and weak wage growth data. Investors believe weak wage growth will limit the extent to which the Fed raises interest rates, meaning the great bond selloff may not be over yet.
Our exposure to the global fixed income markets is lower than usual, however the surge in European interest rates was enough to produce moderate losses in our long German bond positions. We remain long European bonds and short U.S. bonds.