Market Update and Model Portfolio Reviews 8/31/2018
For the month of August, investment grade domestic bonds* rebounded, up 0.64% and down -0.96% for the year. Month over month, large cap domestic equities** had another strong month, up 3.26% and, year to date, up 9.94%. The S&P 500 price index broke through the January 26 all time high to close above 2,900 points. This month, the S&P 500 has entered into its longest bull market on record, surpassing that of the last longest streak from the 90s to the dot com bubble. The current bull market is nearly 9.5 years old. At the start of the month, Apple Inc., the worlds largest company by market capitalization (“cap”), became the first publicly traded company to surpass a $1 trillion dollar market cap. Amazon’s market cap needs less than 2% more in appreciation to become the second publicly traded company to reach a $1 trillion dollar market cap.
Month to date, the models all trailed their respective benchmarks and continued to be affected by the down turn in Gold prices since Gold’s January 24, year to date peak in prices. Since January 24, Gold is off by over 10% when priced in USD. As discussed last month, we reallocated asset classes to bias back to US domestic asset classes. Since the end of May, we have been reversing our dollar positioning from long non-dollar to long dollar assets. At the start of August, we added a sleeve to the portfolio which included a focused basket of currencies, for both developed and Emerging Market (“EM”) currencies, where we positioned ourselves as long dollar vs the basket of non-dollar currencies. The current basket of currencies we are short relative to the dollar have historically shown resilience over periods of global equity volatility as the dollar historically has acted as a safe haven currency in risk off environments. The exception to this long dollar sleeve is our net long position of the yen vs. the dollar. We also believe this new currency sleeve will add diversification benefits to our Gold exposure, which has been a sore spot thus far this year in our allocations. Although we caught part of the UK Equity market selloff from the start of August rebalance, our allocation away from UK equities was beneficial over the course of the month, as the dollar strengthened against the pound sterling due to continued concerns over Brexit and the future of the UK economy.
A look at global equities ex-US shows that it has been a tough year for global diversification. The benchmarks we use to compare our performance are ETFs (Exchange Traded Funds), comprised of common stocks of US companies and domestic fixed income. When we look at our performance relative to benchmarks and strategies that have a global allocation, we find on a year to date basis that our performance comes more in line with portfolios that maintained global exposures. For example, when using the Vanguard FTSE All-World ex-US ETF as a proxy, global equities ex-US are off by -3.42%, year to date and -2.34%, month to date. EM equities have had an even more difficult month and year to date, down -4.19% and -7.67%, respectively, when using the Vanguard FTSE Emerging Markets ETF as a proxy. 2018 thus has been dollar king on both a currency exchange rate basis and domestic equities. Spillover effects from EM economies are of concern, as we enter into the later months of 2018 into 2019. September will likely mark the 3rd interest rate hike of 2018 by the Federal Open Market Committee. This will likely continue to push interest rates up for shorter maturity interest bearing securities.
DISCLOSURE (Click links for sources. If in print, sources available upon request). Calculations & Definitions available upon request. Measured by the Barclays US Aggregate Bond Index* - Morningstar. S&P 500 Total Return Index**. See “Model Disclosure” page for important disclosures and information – Period Measured 12/31/2017 – 8/31/2018. Performance presented net of highest advisory fee, updated 4/1/2018. Views and opinions are of Alternative Capitalis, LLC and are not intended as investment advice.
IT & Discretionary Primary Drivers of Domestic Equity Returns in the US Large Cap Space:
Global Diversification Has Been a Drag in 2018
DISCLOSURE (Click links for sources. If in print, sources available upon request). See “Model Disclosure” page for important disclosures and information. Calculations & Definitions available upon request. Period Measured 12/31/2017 – 8/31/2018. *“S&P 500 Ex-Technology & Consumer Discretionary” was calculated internally by Alternative Capitalis, LLC and is represented by using the iShares Core S&P 500 ETF (IVV) top 250 holdings as of 12/29/2017, excluding Information Technology and Consumer Discretionary stocks, excludes DPS (DR PEPPER SNAPPLE GROUP INC) and all other holdings that are not labelled “Equity” as asset classes. The weightings are then recalculated assuming the market values reported on 12/29/2017 and weightings are not adjusted from initial weighting. **“S&P 500” and “S&P 500 Index” is represented by using the iShares Core S&P 500 ETF (IVV). “World ex-US” is represented by using the Vanguard FTSE All-World ex-US ETF (VEU). “Emerging Markets” is represented by using the Vanguard FTSE Emerging Markets ETF (VWO). Alternative Capitalis, LLC has not been endorsed and is not affiliated with Blackrock (iShares) / Vanguard. Blackrock (iShares) / Vanguard does not endorse the use of this information presented herein nor endorse Alternative Capitalis, LLC. Views and opinions are of Alternative Capitalis, LLC and are not intended as investment advice.
The results do not represent actual trading and actual results may significantly differ from the theoretical results presented.
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Alternative Capitalis, LLC is a registered investment adviser. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Model Performance Disclosure: The performance shown represents only the results of Alternative Capitalis, LLC’s model portfolios for the relevant time period and do not represent the results of actual trading of investor assets. Model portfolio performance is the result of the application of the Alternative Capitalis, LLC’s proprietary investment process. Model performance has inherent limitations. The results are theoretical and do not reflect any investor’s actual experience with owning, trading or managing an actual investment account. Thus, the performance shown does not reflect the impact that material economic and market factors had or might have had on decision making if actual investor money had been managed. Model portfolio performance is shown net of the model advisory fee of 1.25%, the highest fee charged by Alternative Capitalis, LLC. This reflects a change from Alternative Capitalis, LLC highest fee charged to a client(s) account from 1% to 1.25% annually. April 1, 2018 model performance to most recent date presented adjusts for the higher 1.25% annual fee. Model portfolio performance is shown net of the sample trading costs based on our Custodian’s, TD Ameritrade Institutional, trading costs. Performance does not reflect the deduction of other fees or expenses, including but not limited to brokerage fees, custodial fees and fees and expenses charged by mutual funds and other investment companies. Performance results shown include the reinvestment of dividends and interest on cash balances where applicable. The data used to calculate the model performance was obtained from sources deemed reliable and then organized and presented by Alternative Capitalis, LLC. The performance calculations have not been audited by any third party. Actual performance of client portfolios may differ materially due to the timing related to additional client deposits or withdrawals and the actual deployment and investment of a client portfolio, the reinvestment of dividends, the length of time various positions are held, the client’s objectives and restrictions, and fees and expenses incurred by any specific individual portfolio. The performance calculations are based on a hypothetical investment of $100,000 for both the model and benchmarks presented. On July 23, 2018, we corrected previously reported month end performance reports to account for transactions costs (trading fees) related to rebalancing model portfolios. The month end reports effected ranged from 2-28-2018 to 5-31-2018. Prior reports accounted for transaction costs related to trading fees. The four reports have been corrected and updated on Alternative Capitalis, LLC website (www.altcapitalis.com). 2-28-2018 had the largest variance in incorrect performance reported with an average of 9 BPs (“basis points”) (0.09% or 9/100 of 1.00%) of overstated positive performance in the models and ranged as high as 15 BPs to as low as 2 BPs. A comparison chart of the variances in reported performance can be provided upon request. Benchmarks: The performance results shown are compared to the performance of the performance of a blended ETF (exchange-traded-fund) portfolio comprised of the following two ETF’s symbols, SPY & AGG, are described below. The benchmarks used are investible ETFs and their performance calculation is inclusive of the highest fee charged to a client(s) account, 1.25% annually. This will reduce the total return of the investable benchmark by the annualized rate of 1.25%. The ETF symbol SPY (SPDR® S&P 500® ETF Trust) which seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the "Index"). Visit https://us.spdrs.com/en/etf/spdr-sp-500-etf-SPY for more information about the ETF. The S&P 500® Index results do not reflect fees and expenses and you typically cannot invest in an index. The ETF symbol AGG (iShares Core U.S. Aggregate Bond ETF). The iShares Core U.S. Aggregate Bond ETF seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. (the "Index"). Visit https://www.ishares.com/us/products/239458/ishares-core-total-us-bond-market-etf for more information about the ETF. The index composed of the total U.S. investment-grade bond market results do not reflect fees and expenses and you typically cannot invest in an index. The benchmark is blended representing a weighting of a percentage (%) to SPY and percentage (%) to AGG based on the respective model weights below. Unless otherwise indicated, the benchmarks are not rebalanced to maintain their original weighting over the period measured. Instead, they are comprised of the starting allocation and will shift given the prevailing market environment over the period measured. Return Comparison: To benchmark the results, the ETF (exchange-traded-fund) symbol SPY (SPDR® S&P 500® ETF Trust) which seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the "Index"). The S&P 500 was chosen as it is generally well recognized as an indicator or representation of the stock market in general and includes a cross section of equity holdings. In addition, the ETF symbol AGG was chosen as a benchmark. The iShares Core U.S. Aggregate Bond ETF seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. The total U.S. investment-grade bond market was chosen as it is generally well recognized as an indicator or representation of the bond market in general and includes a cross section of debt holdings. For each respective model benchmark the performance measurement weightings are as follows to SPY / AGG %: 20/80, 30/70, 40/60, 50/50, 60/40, 70/30, 80/20, 90/10 % respectively for Ultra Conservative, Conservative, Moderate, Balanced, Growth & Income, Growth, Aggressive, Ultra Aggressive. OPTIONS TRADING RISK DISCLOSURE: Options Trading – Both the purchase and writing (selling) of options contracts –involves a significant degree of risk not suitable for all investors. Investors should carefully consider the inherent risks and financial obligations associated with options trading as further detailed in the Options Clearing Corporate booklet “Characteristics and Risks of Standardized Options.”
The results do not represent actual trading and actual results may significantly differ from the theoretical results presented.