Milvihill

Asset Allocation – October 2017

PDF of Global Asset Class returns click here

Can’t stop, won’t stop. The S&P 500 continued to reach record highs in October and now sits at 2017 gains of 16.9%. The monthly winning streak persisted, S&P 500 now up 12 consecutive months, after returning 2.3% in October. The returns in the US have been boosted by the largest sector in the S&P 500 being the best performer. Technology, which makes up over 24% of the S&P 500 today, is up over 37% YTD. While the attention has been on the FANG stocks, the move has been broad based across the group as the equally weight technology sector is up 33%. Telecom sector plunged -7.6% in October (AT&T) and is now down -12% surpassing the Energy sector as the worst performing group.

S&P 500 Sector Performance YTD

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From as asset class perspective, Emerging Market stocks remain the best performer YTD up 32.6%. A look under the hood shows why Emerging Markets have advanced this year, Investors typically view this group as heavily exposed to commodity based sectors, in fact, the largest sector weights are Financials (26%), Communications (20%), and Technology (14%), while Energy and materials combine to make up just 13%. With 26% allocated to China (up 50% YTD) and the largest holding being Tencent Holdings Ltd, (up 87% YTD), Emerging Market exposure are less commodity dependent than many believe.

Asset Class Performance YTD
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After taking a breather in September, the market themes that worked throughout the year resumed in October. Momentum was the best performing factor up 5% followed by Growth stocks up 3.5%. These two groups have led the way for much of the year with momentum returning 34% YTD while growth stocks have returned 25%.

Commodities continue to be the only asset class in the red down -.8% but is a bifurcated group. Palladium advanced another 5% in October bring YTD gains to 44%. Nickle advanced 18% in October alone and Oil (WTI) surged 5.2% bringing YTD gains positive (+1.2%) for the first time since March.

WTI Oil Price YTD Performance turned positive for first time since March

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The US Dollar advanced vs most major currencies in October with the trade weighted dollar up 1.6%. The Canadian dollar took the brunt of this move falling 3.3% vs the greenback. The dollar remains negative on the year (-7.5%) and we will have to wait and see if the dollar move in October was a bounce within a downtrend or a move that signals a larger shift. We tend to lean towards a more pronounced trend change in the US Dollar given the negative sentiment towards it. Investors are currently net short the US Dollar Index. Bitcoin remains the hot topic and is now up 570% this year after returning 53% in October.

US Dollar Index vs US Dollar Net Non-Commercial Positions

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This document may contain certain forward-looking statements. These statements may relate to future events or future performance and reflect management’s current expectations. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. Although the forward-looking statements are based upon what management believes to be reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Neither the Funds nor their respective managers assume any obligation to update or revise any forward-looking statement to reflect new events or circumstances. Actual results may differ materially from any forward-looking statement. Historical results and trends should not be taken as indicative of future operations. The Fund is not guaranteed, its value changes frequently and past performance may not be repeated. Unless otherwise indicated and except for returns for period less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data take into account distributions or dividends paid to unit holders but do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns.

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