Monthly Strategy Review Braver Capital: February 2019 Update

Braver Capital February 2019 Update.png
  • Market Analysis: Volatility Down, Fed Adopts Patient Rate-Hike Stance

  • Investment Strategy Review


Market Analysis: Volatility Down, Fed Adopts Patient Rate-Hike Stance

Stock markets compounded January’s gains with strong returns in February as a handful of the concerns worrying investors abated. The partial government shutdown came to an end without pushing the U.S. economy into recession. Enough progress was made on U.S.-China trade negotiations that President Trump delayed a planned tariff increase on March 1. And Federal Reserve policymakers strongly suggested that they did not feel a pressing need to continue raising interest rates over the near term. With investors thus emboldened, volatility fell during the month as the CBOE Volatility Index (commonly known as the VIX, or “fear-gauge”) dropped back to levels last seen in October 2018.

The S&P 500 rose 3.2% in February and has returned 11.5% so far this year—the best two-month start for the index since 1991. Every broad S&P sector rose in February, with technology and industrial stocks up more than 6%.

Foreign developed markets were also lifted by positive sentiment on trade, though emerging markets were flat in February. The MSCI EAFE Index returned 2.6% for the month (up 9.3% for the year), while the MSCI EM Index gained just 0.2% (up 9.0% for the year).

Returns across the fixed-income market sectors were mixed during the month. Corporate high-yield bonds built on recent strength—the Bloomberg Barclays U.S. Corporate High Yield Index returned 1.7% in February. With investors embracing risk again, high-quality bonds were out of favor. The Bloomberg Barclays U.S. Aggregate Bond Index declined 0.1% while the Bloomberg Barclays U.S. Treasury Index fell 0.3% in February.

Investment Strategy Review

Our Dividend Income portfolio remains overweight companies in the technology, financials and consumer staples sectors. The portfolio’s current dividend yield is approximately 2.6%, compared to 1.9% for the S&P 500 index benchmark.

After the continued market rally in February, our Global Tactical Balanced investing strategy reduced its Treasury holdings and added to corporate bonds. The strategy also added exposure to the broad stock market, selling consumer staples and consumer discretionary ETFs to add to an ETF tracking the S&P 500. Currently, 47% of the portfolio is invested in equities, while just over half of assets are in fixed income.

As March begins, our Tactical Balanced strategy is in a somewhat defensive posture. Half of the portfolio is split evenly between an S&P 500 ETF and cash. The other half of the portfolio is invested in an ETF owning high-quality U.S. investment-grade bonds.

Our Tactical High Income portfolio has been fully invested in high-yield bonds since December 2018. The strategy has benefitted from stable credit spreads and positive investor sentiment.

Consistent with recent stock market strength, Tactical Opportunity remained 100% invested for the month of February. The only change for the month occurred when a utilities sector investment was replaced with real estate stocks.

Market trends in February prompted several trades in Tactical Equity Sector Rotation—the consumer discretionary and biotechnology sectors were replaced with two of the strongest sectors year to date: Industrials and technology. While our other tactical 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 defensive sectors, such as health care and consumer staples, along with financials, real estate, telecom and utilities.

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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