Monthly Strategy Review Braver Capital: March 2019 Update

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  • Market Analysis: Global Stocks Continue Climb, Bonds Rebound

  • Investment Strategy Review

Market Analysis: Global Stocks Continue Climb, Bonds Rebound

Global stock markets continued climbing in March, extending the year’s solid gains. The S&P 500 index gained 1.9% for the month and 13.7% in the first quarter—its best calendar-quarter return in seven years. The MSCI EAFE index and MSCI Emerging Markets index returned 0.7% and 0.8%, respectively. They gained 10.2% and 9.9% in the first three months of the year. 

Throughout 2019, investors have had to contend with a range of jarring headline concerns. In March alone, anticipation of a final trade deal with China was put on the back burner, as slowing global growth, an uncertain Brexit and a newly dovish Federal Reserve took center stage. The potentially explosive Mueller report, completed mid-month, turned out to be a non-event, and investors seemed to shrug it and an inverted yield curve off to finish the month on a high note.

Returns for different sectors of the market ranged widely, though. Cyclical stocks in the industrials and materials sectors came back to Earth on expectations for a trade deal with China. Health care stocks were flat and financials trailed the market as the Fed’s policy change hurt sentiment. Real estate, technology and consumer discretionary stocks led the month’s gains, while defensive sectors (consumer staples and utilities) held up well.

After finishing flat last year, bonds also rebounded in the first quarter. The Bloomberg Barclays U.S. Aggregate Bond Index, a broad measure of high-quality U.S. bonds, gained 1.9% in March and is up 2.9% year-to-date.

Domestic high-yield corporate bonds did even better, gaining 7.3% year to date through March—the best start to a year since 2003 for junk bonds. A stable economic backdrop, low default rates, and healthy corporate balance sheets have provided a tailwind for the sector.  

Investment Strategy Review

In our Dividend Income portfolio, weakness in the health care sector led to an opportunity to take a stake in a medical device company with a long history of dividend payments. The portfolio is overweight positions in the technology, financials, health care and consumer staples sectors and its current dividend yield is approximately 2.5% compared to 1.9% for the S&P 500 index. 

With both stocks and bonds continuing to rally in March, our Global Tactical Balanced strategy increased its stock exposure by adding a small position in the consumer staples sector. The model also triggered the purchase of a position in China, seeking to capitalize on recent momentum fed by Chinese economic data. The strategy increased its duration (sensitivity to interest rates) by buying long-term corporate bonds. Currently, the portfolio is evenly split between stocks and bonds. 

As April begins, one of the models in our Tactical Balanced strategy triggered the purchase of U.S. stocks and the sale of one of the portfolio’s bond ETFs. These trades bring the strategy to its maximum stock allocation of 75% of assets. The other 25% is invested in investment-grade bonds. 

Our Tactical High Income portfolio has been fully invested in high-yield bonds since December 2018. The strategy has benefitted from narrowing credit spreads, positive investor sentiment, the low level of defaults and economic growth. Note that the strategy now invests only in ETFs, rather than a mix of ETFs and mutual funds, a move we believe will enhance its performance and management. We implemented the change on April 1, 2019. 

Tactical Opportunity was active during the month of March, trading various sectors and allocating to Treasury bonds at the end of the month. The strategy is currently 85% invested in stock ETFs and 15% in a Treasury ETF. 

Market trends in March prompted one trade in the Tactical Equity Sector Rotation strategy—the financials sector was replaced by semiconductors. While our other tactical investment strategies have the potential to reduce risk by trading to cash or bonds, Tactical Equity Sector Rotation is always fully invested in the eight stock sectors or industries that show the strongest relative performance. The portfolio currently includes stocks in the health care, consumer staples, real estate, telecom, utilities, industrials, technology and semiconductor sectors.

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.

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.