The fund was down -2.07% in February as short positions in equities accounted for most of the losses.
February was a milder version of January as markets rallied despite a lack of resolution around the major risks in the global economy. Although President Trump held off raising tariffs on the original March 1 deadline, U.S. – China trade talks still continue without a deal. Meanwhile, we are racing toward the March 29 Brexit deadline with little clarity around its resolution. Central bank support remains a catalyst as equity markets continue to rally despite these risks. This sustained rally caused the fund to cut its short equity positions in half during February, including closing shorts in all U.S. equity indexes as they continued to move higher.
Much like equities, the energy complex continued to climb but at a slower pace with major oil benchmarks gaining roughly 5% in February. The fund remained short the energy complex amid the ongoing rally. Meanwhile the U.S. dollar proceeded to chop sideways but ended February up slightly returning to levels seen at the end of 2018. The fund remained long the U.S. dollar versus most major currencies.Performance (as of 12/31/2018)
Given the drastic reversals in equities from 2018 until now, the fund’s equity exposure currently sits near all-time lows. This means in the near term the performance will be heavily driven by other areas, specifically commodities which represent nearly half the portfolio currently. While January hurt more from a performance aspect, February was the month that really reshaped the portfolio. Looking at the portfolio as a whole, the fund went from 80 positions to 63 positions by the end of the month, highlighting the lack of strong trends across the globe.
Moving forward, our clearest position to capitalize on is a strong U.S. dollar, along with weakening equities abroad. Commodities are more of a mixed bag but given the large current allocation to them, they remain important. The shakeout process can be difficult but allows the fund to be flexible and move quickly to enter new trends.
We closed positions in 12 global equity markets, with 6 of these being US indexes. (NASDAQ, S&P 60, VIX, S&P 500, Russell 2000, S&P Mid-Cap 400). There were no initiations in this asset class during the month and we remain net short internationally.
Long positions in German, Australian, and Canadian bonds caused losses in Fixed Income.
Small gains in long U.S. dollar positions helped produce positive returns in this asset class, offsetting losses from long yen positions.
Commodities gains were driven by short positions in grains while our short position in the energy complex was a mild detractor.