Monthly Strategy Review Braver Capital: September 2019

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  • Market Analysis

  • Investment Strategy Review

Market Analysis

Stock markets rallied here and abroad in September, as equities recovered from the prior month’s losses and closed out an eventful third quarter on a moderately positive note.

Despite trade and tariff tensions, the S&P 500 index advanced 1.9% in September and 1.7% in the third quarter—bringing the large-cap stock index’s total return to 20.6% for the year to date.

Sentiment improved overseas as well, even as economic growth continues to wane. The MSCI EAFE index, a broad measure of stocks in developed markets, returned 2.9% in September. The index declined 1.1% during the third quarter and has gained 12.8% in 2019. Bucking the overall trend, the MSCI Emerging Markets index gained 1.9% last month, but dropped 4.2% over the quarter and has returned only 5.9% year-to-date.

And in a reversal, value stocks outperformed growth stocks in September—although this may be a short-lived rebound by the largely lagging sector. Large-cap stocks continued to outperform small- and mid-caps. While most industry sectors posted gains for the month, there was wide dispersion in performance: Financial and utilities stocks gained over 4.0%, while health care stocks posted the only loss, down 0.9%.

While bond prices fell as yields rose in September, most fixed-income sectors finished the quarter with gains and have produced solid returns so far this year. The Bloomberg Barclays U.S. Treasury index was down 0.8% during the month but has gained 7.7% year-to-date. The Bloomberg Barclays U.S. Aggregate Bond index—a broad measure of high-quality bonds, including Treasury and corporate bonds—fell 0.5% in September but has returned 8.5% this year. Less sensitive to interest rates, U.S. high-yield corporate bonds outperformed as credit fundamentals continue to show strength. The Bloomberg Barclays U.S. Corporate High Yield index yielded a 0.4% gain for the month and has produced an 11.4% total return year-to-date.

As we enter the final quarter of the year, investors and traders have to contend with issues on many fronts: U.S.-China negotiations, Brexit, a potential recession in Europe and mixed economic data in the U.S., protests in Hong Kong, Federal Reserve actions and an impeachment inquiry—any of these could flare up and lead traders to hit the sell button. Conversely, resolution or even partial solutions to any of these matters could lend positive momentum to the markets. Our tactical strategies are designed to remove emotion from the equation and take a disciplined approach to trading the markets.

Our tactical strategies are designed to remove emotion from the equation and take a disciplined approach to trading the markets.

Our Strategies

When opportunities present themselves, we take advantage of them, seeking to upgrade our Dividend Income portfolio with better companies at better values and trimming those that have outperformed. As such, we made several trades in the financial sector of our Dividend Income portfolio in September. We trimmed one of our largest bank holdings after the stock appreciated during the month as intermediate-term interest rates rose, which generally benefited the sector. We swapped a large bank that had underperformed the sector in favor of a smaller northeast regional bank with an increasing dividend and battleship balance sheet. At the end of the month, our 2.5% dividend yield compared favorably to the 1.9% dividend yield for the S&P 500 index—our benchmark. Our bottom-up stock-selection process has led us to overweight health care, financials, consumer staples, utilities and industrial stocks relative to the S&P 500.

Our Global Tactical Balanced strategy’s signals resulted in trades that increased the foreign stock exposure in the portfolio—we added several individual country ETFs and reduced international bonds. Currently, 35% of the portfolio is invested in stocks, of which 10% is in foreign markets, about 18% is in real estate and the remaining 47% is invested in bonds, preferred stocks and cash.

There were no trades in our Tactical Balanced strategy this month. Half of its portfolio is in an S&P 500 ETF and half is in high-quality bonds.

Our Tactical High Income strategy continues to benefit from the strength in the high-yield bond market. The strategy remains 100% invested in high-yield ETFs. 

The Tactical Opportunity strategy was active during the month, increasing exposure to stocks. The portfolio currently has 95% of assets in equities and 5% in cash. Our equity exposure is in consumer staples, real estate, financials and broad market ETFs.

Tactical Equity Sector Rotation swapped out of consumer staples stocks and added homebuilders during the final week of September. The portfolio is fully invested in stocks, with half of the assets in an S&P 500 ETF. The rest is split between three sector ETFs—homebuilders, utilities and real estate.

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All Braver strategies carry a risk of loss. Markets can gain or lose value in dramatic fashion over the span of a single day, month or more. Braver strategies—nor the models that guide the strategies—cannot guarantee the avoidance of market losses, or that the strategies will participate in all market recoveries or gains. Yield figures provided on certain portfolios do not represent portfolio performance, and therefore should not be interpreted as such or used to estimate or infer portfolio performance.

The terms “high-quality bonds” and “investment-grade bonds” when used in the Our Strategies section refer to funds that primarily invest in bonds rated BBB or higher by at least one rating agency.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. References to current sector positioning are for informational purposes only and are not to be construed as statements of the current, past or future profitably of the particular positioning. Data and statistics contained herein are obtained from what we believe to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed.

© 2019 Braver Capital Management, an Adviser Investments, LLC company. All Rights Reserved.