Monthly Strategy Review Braver Capital: July 2019

Market Analysis

July was a relatively quiet month as global investment markets built on June’s impressive stock market gains. Accommodative policies from central banks around the globe and a better-than-expected start to the U.S. earnings-reporting season supported stocks’ gains.

The S&P 500 index, which hit eight new highs and crossed the 3,000-point level for the first time, returned 1.4% in July. A rising dollar was a headwind for foreign stocks—the MSCI EAFE Index fell 1.3% and the MSCI Emerging Market Index dropped 1.2% during the month.

On the final day of July, the Federal Reserve, as expected, cut the benchmark fed funds rate for the first time in 11 years. Traders who’d bought on the rumor of a rate cut sold on the news that policymakers had apparently moved from being strictly “data dependent” in their deliberations. Citing a lack of experience with global trade conflicts, Fed Chair Jay Powell suggested the rate move was an attempt to get ahead of slowing global growth.

Bottom line? Trade uncertainty remains a major impediment to U.S. economic growth.

On the trade front, talks between the U.S. and China appeared to hit a roadblock, as a meeting in Beijing between the two sides was cut short. Market reaction was muted, until President Trump began tweeting threats of further tariffs. Bottom line? Trade uncertainty remains a major impediment to U.S. economic growth.

We saw wide dispersion among U.S. stock sectors in July, with seven of the S&P 500’s 11 sectors posting gains. Communication services, technology and consumer staples topped the leaderboard, while energy and health care underperformed.

The fixed-income market was mixed in July and showed investors’ increased appetite for risk. U.S. Treasurys declined 0.1% during the month, while both investment-grade and high-yield bonds outperformed. The Bloomberg Barclays U.S. High Yield Index posted a 0.6% return in July, and the Bloomberg Barclays U.S. Aggregate Bond Index—a broad measure of high-quality bonds—returned 0.2%.

Monthly Strategy Review

The Dividend Income team has been busy evaluating the many second-quarter earnings reports issued by companies in the portfolio. We made no changes to the portfolio during the month. Our current 2.4% dividend yield compares favorably to the S&P 500’s (our benchmark); it had a dividend yield of 1.9% at July’s end. We continue to overweight health care, financial, consumer staples and industrial stocks relative to the S&P 500.

Our Global Tactical Balanced strategy reduced risk at the beginning of August, trimming the S&P 500 ETF holding and selling the homebuilder ETF—proceeds from these sales were added to bonds and REITs. Currently, 27% of the portfolio is invested in equities, about 18% is in real estate and the remaining 55% or so is invested in bonds.

At the start of August, one of the momentum models signaled a move out of bonds and into stocks in our Tactical Balanced strategy. As a result, 75% of the strategy is now invested in an S&P 500 ETF and 25% is in high-quality bonds.

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

Our Tactical Opportunity strategy was relatively quiet for the month, with exposure to stocks remaining at 95%. The strategy is currently invested in financials, utilities, real estate and broad market ETFs.

Tactical Equity Sector Rotation made several trades at the end of July, selling real estate and homebuilder stocks while adding to the strategy’s S&P 500 ETF holding and technology stocks. 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—consumer staples, utilities and technology.

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.

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