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Markets in Motion - Happy New Year

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Markets in Motion - Happy New Year

 Markets in Motion will return in January for an annual 2019 recap and full 2020 forecast. In the meantime, below we have provided our changes for December. It has been a solid year for all of our risk-adjusted strategies, and we look forward to the new decade with optimism and enthusiasm.

We are grateful to all our Advisors, Brokers, and partners who trust us with your business and we wish you all a wonderful Holiday Season!

This month, we trimmed our equity exposure – exiting our position in EM ex-Asia equities – and initiated a position in EM local currency bonds.

2019-12-chart-1

Recent Portfolio Changes

  • We exited our position in Latin American equities. While our fundamental outlook on emerging markets has notchanged, we sold Latin American equities to reduce volatility into year end.
  • We initiated a position in emerging markets local currency bonds. As global growth recovers, the dollar should weaken. Emerging market local currency bonds provide an excellent dollar hedge and deliver attractive yields.

Portfolio Changes
Since September 1, 2019

Cash

We initiated a position in cash. As risks persist across asset classes, and with 1-3 month treasury yields near 2%, an elevated position will help shield the portfolio from volatility.

Fixed Income (US)

We continue to be overweight in our position to Ultrashort Duration Bonds. Huge moves in interest rates have left government bonds at extremely low levels, reflecting a very bearish view of economic growth. We continue to see duration as a risk and favor short term High Yield Bonds and Ultrashort Duration at the expense of allocations to long-dated fixed income.

We maintain our position in Preferred Stocks. We maintain our conviction to the position. We expect the asset class’s attractive yield and positive tailwinds will continue to provide diversification benefits to the portfolio.

We initiated a position in short-term High Yield Bonds. In a rates up world, we prefer credit risk to duration risk. We believe that short term High Yield Bonds are a great value proposition in this environment.

Fixed Income (International)

We increased our position in Emerging Market Bonds. Given solid sovereign fundamentals and cyclical highs for yield spreads, we believe that Emerging Market Bonds provide attractive yield and portfolio diversification.

We initiated a position in Emerging Market Local Currency Bonds. As global growth recovers, the dollar should weaken. Emerging market local currency bonds provide an excellent dollar hedge and deliver attractive yields.

Equity (US)

We maintain positions in Quality equities. Quality equities possess pricing power, exhibit strong profitability, and have additional sustainable competitive advantages which allow businesses to remain viable over time. We feel this holding is prudent in the later stages of the US credit cycle.

We initiated a position in Value equities. We believe that Value equities provide yield at a reasonable price, are historically cheap relative to other style factors, and should outperform as the macroeconomic backdrop recovers.

Equity (International)

We maintain a position in Emerging Market equities. We believe that the most important risk to Emerging Markets (abig Chinese growth slowdown or collapse in its currency) is unlikely and US-China trade negotiations have improved on the margin. Further Chinese stimulus should boost global growth.

We initiated a position in Broad European equities. We expect easing financial conditions to re-accelerate global growth and international stocks to outperform. Accommodative global monetary policy offers support across the board, but we see the greatest opportunities in Europe.

We initiated a position in International Quality equities. We maintain our conviction to Quality factor exposure and upgraded our ex-US regional exposure.

Alternatives

We initiated a position in Broad Commodities. We expect oil and industrial metals prices will move higher as economic
growth recovers. Additionally, the recent Saudi oil attack puts a risk premium into the oil price.

 


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Please do not hesitate to contact us with any questions!
Best regards,

John A. Forlines III

Co-Chief Investment Officer


1Information as of 12/17/2019. Individual account allocations may differ slightly from model allocations
2Contains international exposure

Past performance is no guarantee of future results. The material contained herein as well as any attachments is not an offer or solicitation for the purchase or sale of any financial instrument. It is presented only to provide information on investment strategies, opportunities and, on occasion, summary reviews on various portfolio performances. The investment descriptions and other information contained in this Markets in Motion are based on data calculated by W.E. Donoghue & Co., LLC (W.E. Donoghue) and other sources including Morningstar Direct. This summary does not constitute an offer to sell or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities.

The views expressed are current as of the date of publication and are subject to change without notice. There can be no assurance that markets, sectors or regions will perform as expected. These views are not intended as investment, legal or tax advice. Investment advice should be customized to individual investors objectives and circumstances. Legal and tax advice should be sought from qualified attorneys and tax advisers as appropriate.

The JAForlines Global Tactical Allocation Portfolio composite was created July 1, 2009. The JAForlines Global Tactical Income Portfolio composite was created August 1, 2014. The JAForlines Global Tactical Growth Portfolio composite was created April 1, 2016. The JAForlines Global Tactical Conservative Portfolio composite was created January 1, 2018.

Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Individual portfolio returns are calculated monthly in U.S. dollars. Policies for valuing portfolios and calculating performance are available upon request. These returns represent investors domiciled primarily in the United States. Past performance is not indicative of future results. Performance reflects to re-investment of dividends and other earnings.

Net returns are presented net of management fees and include the reinvestment of all income. Net of fee performance was calculated using a model fee of 1% representing an applicable wrap fee. The investment management fee schedule for the composite is: Client Assets = All Assets; Annual Fee % = 1.00%. Actual investment advisory fees incurred by clients may vary.

W.E. Donoghue & Co., LLC (Donoghue) claims compliance with the Global Investment Performance Standards (GIPS®).

The Blended Benchmark Moderate is a benchmark comprised of 50% MSCI ACWI, 40% Bloomberg Barclays Global Aggregate, and 10% S&P GSCI, rebalanced monthly.
The Blended Benchmark Conservative is a benchmark comprised of 35% MSCI ACWI, 55% Bloomberg Barclays Global Aggregate, and 10% S&P GSCI, rebalanced monthly.
The Blended Benchmark Growth is a benchmark comprised of 65% MSCI ACWI, 25% Bloomberg Barclays Global Aggregate, and 10% S&P GSCI, rebalanced monthly.
The Blended Benchmark Income is a benchmark comprised of 80% Bloomberg Barclays Global Aggregate Bond Index, 10% MSCI ACWI, and 10% S&P GSCI, rebalanced monthly.

The MSCI ACWI Index is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The S&P GSCI® is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

Index performance results are unmanaged, do not reflect the deduction of transaction and custodial charges or a management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. You cannot invest directly in an Index. Economic factors, market conditions and investment strategies will affect the performance of any portfolio, and there are no assurances that it will match or outperform any particular benchmark.

Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. For a compliant presentation and/or the firm’s list of composite descriptions, please contact 800‐642‐4276 or info@donoghue.com.

W.E. Donoghue is a registered investment adviser with United States Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940.

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W.E. Donoghue is a registered investment adviser with United States Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940.

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Disclosure:

The views expressed are current as of the date of publication and are subject to change without notice. There can be no assurance that markets, sectors or regions will perform as expected. These views are not intended as investment, legal or tax advice. Investment advice should be customized to individual investors objectives and circumstances. Legal and tax advice should be sought from qualified attorneys and tax advisers as appropriate.