The Longboard Managed Futures Strategy was up +0.11% on the month as gains in stock indexes and fixed income offset losses in currencies and commodities.
In June, many investors expected the Federal Reserve to announce a rate cut as President Trump continued to apply pressure on Fed Chairman Jerome Powell amongst a host of geopolitical conflicts. While the Fed did not announce the cut that President Trump had been hoping for, a dovish Fed led to speculation that the central bank may cut rates by 50 basis points for the remainder of 2019. The ongoing dovish stance of the Fed combined with weaker than expected economic data led to gains in the equity markets and meant that the US dollar finished the month as the worst G10 performer.
Eurozone issues continued as the ECB kept rates on hold as well and Theresa May stepped down as UK Prime Minister early on in the month. Less-than-impressive European data followed, and concerns of a hard Brexit persisted as the UK leadership race heated up with Boris Johnson, the former Mayor of London, emerging as a front runner against Jeremy Hunt. Both candidates said they want to leave the EU on October 31, 2019.
Elsewhere, the dispute between US and Iran heightened with Iran shooting down a US military surveillance drone, leading to a reduction in risk appetite and increasing concerns of a military conflict between the nations. This led to a recovery in oil prices after a significant drop in May and gold rallied to a six-year high supported by a weaker USD, dovish Fed comments and a flight to safety for investors.
At the same time, the US and China appeared to approach a truce as Presidents Trump and Xi met at the G20 summit. President Trump then announced a deal is “90% done” which was a positive for the stock market.Performance (as of 6/30/2019)
Geopolitical uncertainty had a mixed effect on the portfolio. While our fixed income exposure continued to profit from weaker global economic conditions, our foreign exchange positions suffered as investors sold the US dollar and Japanese yen, two currencies we are long. If this uncertainty continues, we should expect the same performance from these sectors. Our equity exposure comes predominantly from the US and Europe, and lower interest rates should benefit our long exposure. However, if lower rates do not prevent a global recession, equities could suffer similar to currencies. In commodities, we still maintain a short bias in grains and soft but initiated long gold positions in both the US and Japan as investors looked for a “safe haven” asset. Gold prices should continue to rise if investor doubt regarding the health of the global economy remains. Some of this ambiguity will be addressed when the Federal Reserve meets at the end of July.
Global stock markets rallied on the expectation of lower global interest rates. Long positions in the French, Dutch, European and Australian markets contributed to the gains.
Global bond prices also surged higher during the month due to the probability of central bank easing. The largest gains came from long positions in US, German, Japanese and Italian bonds.
Long US Dollar and Japanese Yen positions hurt the portfolio as the Fed assumed a dovish stance.
Commodities finished the month relatively unchanged. Gains in energies, softs and precious metals were offset by losses in industrials and grains.