The fund returned +1.48% in August. Gains from commodities and equities offset modest losses in currencies and fixed income.
Cracks emerged in the foundation of the global equities bull market. After hitting record lows in July, volatility surged in early August. Tensions on the Korean Peninsula caused the spike in volatility, but global risk assets soon rebounded. However, warning signs indicated a persistent risk-off mood. These signals included deterioration in U.S. small caps, transportation stocks and high-yield bonds. Also, strength in precious metals and U.S. government bonds suggested robust demand for haven assets, even with stock markets near record highs.
Powerful trends prompted the fund to redeploy capital into commodities and currencies, while shifting risk exposure away from equities. The big themes that developed in commodities include rising metals prices, both industrial and precious, and falling agricultural prices. Oversupply fueled agricultural deflation across the grain complex and in soft commodities. Conversely, supply deficits and rising demand fueled new uptrends in various metals markets. Weakness in the United States created profitable trends in currencies, while fixed income markets remain largely devoid of long-term trend opportunities.Performance (as of 8/31/2017)
Global markets face some crosscurrents heading into fall. Resurgent corporate profits and stable economic growth offer a healthy tailwind to global risk assets. Yet, a number of potential catalysts could spur volatility. These include the threat of military escalation with North Korea, plus an expected political fight over the U.S. budget and debt ceiling negotiations. Longer term, the wind down of European Central Bank (ECB) asset purchases plus tightening from the U.S. Federal Reserve mean markets could lose a powerful tailwind for economic stimulus and asset price inflation.
Our portfolio changes in August caused our commodities’ risk allocation to surpass equities for the first time this year. This rebalanced posture should make the fund’s performance less correlated with global stock markets going forward.