Global Allocation FI is the best Spanish fund in the last 10 years (source: Morningstar).
Q3/Q4 2016 Hedge Fund Letters
Global Allocation Fund commentary for the month ended September 30, 2016.
September started without a clear direction until the bond market suffered brusquely affecting the stock market.
Recently, Bruce Greenwald carried out a virtual Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital. Greenwald and Lu covered multiple topics during the discussion, addressing everything from the value investor's approach to appraising businesses and what he had learned from his great friend Charlie Munger. The duo also discussed China's economy Read More
For a few days it seemed that the fall in the bond market was the sign that we were expecting for months: a tipping point in the interest rates. In fact, the market reacted to the increase of the interest rates in Japan as the Bank of Japan is starting to realize that a steeper interest rates curve is needed.
But as the stock prices fell, the bonds reacted as a refuge and thereafter recovered.
Although the banking sector initially did better than the stock indexes, later it fell due to the increase in interest rates, even if this is the sector that benefits most from such rise. Nevertheless, by the end of the month, and especially due to the hefty headlines on Deutsche Bank and its troubles, the banking sector advantage went down the drain. The alleged crime is the role of the bank in the sale of mortgage titles in 2008. The proposed penalty is a fierce 15,000 million euro; an amount that at certain times has even been the value of the bank in the stock market. And it is not even a fourth of its book value!
The last day of the month was the most violent and volatile of them all. At the opening, we saw the European banking index fall more than 5% to finish the day with gains due to the rumour that the penalty for Deutsche Bank could be much lighter than expected.
Truth is that these type of movements scare investors. Recently we have realized that the liquidity level of investors is at record highs and is thus supporting the market when it falls. This is one of the reasons why we believe that the last quarter may be quite favourable for the stock markets.
In the bond market there is also quite a bit of liquidity; although the expected increase of interest rates of the Federal Reserve by the end of the year may also trigger new reactions by the ECB finally realizing that negative interest rates have more cons than pros, and this should be definitely good for us.
In the mean time we hope the markets will be contented with being just boring and not disgusting. That is how the day normally shapes before the good part starts. At least, it is good to know.
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