The Ides of March brought mild headwinds for overall fund performance, although foreign equities soared against their U.S. counterparts. The fund returned +.56% in March with profits in equities offsetting losses in currencies, fixed income and commodities.
A number of trends challenged conventional thinking during the month, especially in the United States. Investors bullish on U.S. stocks, a stronger U.S. dollar and an infrastructure boom spurred by the Trump Administration faced some frustration in March.Performance (as of 3/31/2017)
The fund’s exposure to equities grew in response to uptrends, especially in European and emerging markets. In fact, the fund was long in 24 of the 25 equity markets it followed in March. Growth and inflation are rising in several European countries, while emerging markets are benefiting from rebounding commodities prices and a weaker U.S. dollar. India is leading global markets this year, bolstered by a new government policy that replaced cash transactions with ones taking place through a centralized digital currency network.
The U.S. dollar remained largely flat despite an interest rate hike by the Federal Reserve mid-month. It’s uncertain whether this contrarian trend will continue, but it is not without precedent. In the late 1970s and mid-2000s, the dollar moved downward despite aggressive Fed rate hikes. The current environment appears to be creating opportunities in currencies that are benefiting from undervaluation and attractive interest rate spreads, like the Russian ruble. In contrast to the 1990s, Russia today has one of the lowest debt-to-GDP ratios in the world, and the country has been diversifying its economy and forging major economic alliances with emerging Asian economies, most notably China.
Commodities were mixed in March, with hopes fading that the Donald Trump administration would be able to move quickly on infrastructure improvements. Many investors who were hot on base metals and energy-related stocks have since cooled as legislative realities set in. Crude is one example of a consensus trade that failed to pan out. In fact, energy was among the worst performers in the first quarter, despite a cut in output from Saudi Arabia.