The fund returned +1.21 in June with notable gains coming from the commodity sector, particularly in grains and energies.
Global equities were broadly balanced during the month amidst ongoing trade tensions. Domestically, more defensive names within utilities and consumer staples posted returns of more than 2% while internationally, Chinese equities fell by more than 5% due to ongoing geopolitical tensions regarding tariffs.
In a similar fashion, the U.S. dollar continued to strengthen in June. This was a result of the Federal Reserve hiking interest rates mid-month as well as positive economic data. However, geopolitical uncertainties caused a “risk off” scenario that saw currencies in Australia, New Zealand, Japan, China, and Canada weaken versus the greenback.
In June, energy markets strengthened as headlines and rumors surrounding the OPEC meeting caused a flurry of price spikes in crude oil and its products. Agricultural commodities such as soybeans ultimately weakened amid trade tension with China, beneficial crop weather and oversupply concerns. Precious metals also weakened as equities remained resilient and the dollar strengthened.Performance (as of 6/30/2018)
There is no end in sight for the ongoing political tensions surrounding the potential for a trade war. During the month, President Trump announced a number of tariffs on imports from the EU, China, Mexico and Canada. The market seems to be interpreting this as a positive for the U.S. as domestic equities remain upbeat and the U.S. dollar continues to strengthen.
These factors paired with the Federal Reserve that has effectively communicated a consistent hiking policy have led domestic yields, equities and the US dollar to rise. However, much remains to be seen in terms of the longerterm impact on economic growth and the potential for tariff retaliation.
Amidst the political unknowns, the current landscape of varied moves in commodities has allowed exposure in commodities to increase while trends continue to strengthen. Heading into the second half of the year, our exposure to commodities is our largest allocation of risk at the portfolio level.
Relative to previous months, U.S. equities were fairly subdued during June. The S&P 500 finished up less than 1% as pressure subsided but global tensions remained a headwind. Elsewhere, Hong Kong, China, and Singapore each saw equities fall by more than 5%. In Australia and Spain, positive growth expectations saw equities rise by more than 3%.
We closed long positions in equity indexes based in China (H-Shares), Singapore, and Sweden (OMX). Meanwhile. we opened a new long position in Canadian equity futures. Our overall equity exposure fell during the month.
The commitment from the Federal Reserve to continue gradually hiking interest rates paired with higher inflation data caused short term interest rates to end the month slightly higher. However, increased tariffs and potential retaliation caused U.S. 10-year yields to end the month lower.
We closed short positions in Canadian government bonds and Australian 3-year bonds. However, our overall fixed income exposure remained fairly constant during the month.
The U.S. dollar continued to strengthen during the month as global trade tensions created a “risk off” theme. Also, the Federal Reserve hiked by 25bp and caused further interest rate differentials between global central banks. In the euro, price action was driven by the announcement for an end of quantitative easing paired with dovish forward guidance. The Australian and New Zealand dollars were the worst performing currencies of the G10, falling by more than 2% versus the U.S. dollar
We closed a long position in British pound versus the Australian dollar as well as a short position in Australian dollar versus Canadian dollar. We closed a short U.S. dollar position versus the South African rand and we opened new long positions in U.S. dollar versus Australian and New Zealand dollars. Our overall currency exposure increased slightly as our portfolio continues to add to long U.S. dollar positions.
Commodities were the best performing asset class for the month as profits in grains and energies more than offset losses in metals. As mentioned above, trade wars with China and favorable weather conditions weighed heavily on the grain complex, which was beneficial to our short positions in soybeans, bean oil, wheat and corn. In energies, expectations that OPEC would announce a supply increase caused weakness in the sector early in the month. However, the announcement by OPEC of a less than expected increase along with speculation that the U.S. would stop importing oil from Iran boosted Brent Crude above $79 per barrel as the contract ended the month nearly 3% higher. Metals posted a loss for the month as long positions in aluminum and nickel were adversely affected by talk of tariffs and a strengthening US dollar. However, a significant portion of the losses were offset by our short position in platinum which sold off due to these same factors.
We opened new short positions in soybeans, Minneapolis wheat, and corn as well as a new long position in rough rice. We closed long positions in London cocoa and tin. Our overall commodity exposure increased slightly during the month and remains are largest risk allocation at the moment.