The fund returned +4.03% in October, as profits from commodities and equities offset losses in currencies and fixed income.
The global equities bull market continued. Mega-cap multinationals led the market. Solid earnings reports drove price gains in technology stocks like Amazon, Microsoft and Alphabet (formerly Google). In fact, more than half of October’s S&P 500 gains came from just five technology stocks. Despite the narrow leadership within domestic equities, global breadth ticked higher as new foreign markets entered uptrends.
Currencies created a performance headwind, as the U.S. dollar strengthened against its major counterparts. The dollar (or greenback) received a lift from tax reform hopes and the shift towards balance sheet reduction from the U.S. Federal Reserve (Fed). We reduced currency exposure as the dollar rallied against its long-term downtrend, causing modest losses. Conversely, we increased commodities exposure as new trends took hold. The increase in exposure generated profits across energy and agricultural markets. Our fixed income exposure remained low due to the lack of long-term trends in global sovereign bonds.Performance (as of 10/31/2017)
U.S. equities resisted their historic tendency for turbulence in October. Instead, they made new highs while the CBOE volatility index registered its lowest monthly average on record. The market appears determined to climb the “wall of worry,” defying the growing chorus of skeptics with each new record high. Our disciplined approach requires a commitment to longterm trends—no matter how uncomfortable or counterintuitive. So far, this approach has yielded profits in 2017.
That said, the portfolio does not fully depend upon further gains in stock prices. We increased our commodities risk allocation, which closely trails the total risk allocation to equities. Commodities prices continue to diverge. Fundamentals are driving uncorrelated price trends across the asset class. For example, the rebalancing oil market has fueled new uptrends in crude oil and gasoline, while oversupply continues exerting downward pressure on grains. Going into November, we believe the fund is positioned to keep delivering returns uncorrelated with traditional asset classes.