Value Investing

Global Allocation Fund February 2017 Commentary

Global Allocation Fund commentary for the month ended February 28, 2017.

2016 Hedge Fund Letters

The month of February has been rather anodyne. The most remarkable has been the new historical maximums of US equities, where the optimism derived from TrumpĀ“s economic program remains unabated.

Global Allocation Fund

Global Allocation Fund

In Europe, cautiousness keeps dominating given the political landscape. Thus, we have witnessed a general widening of spreads between the different countriesĀ“ debt and Germany due to the favorable polls for Marine Le Pen. This widening has had more to do with the rally in German bonds than the selloff of others. This means that long term interest rates keep been abnormally low, which is favorable for the so-called risk assets. In the last days of the month German bonds have lightly corrected.

We have maintained our equity exposure at elevated levels. The widening in government bonds has not been translated into corporate debt, which have performed very well instead. This signals that the balance sheet strength of the main companies is being enhanced at a rapid pace, making equity prices attractive in comparison with corporate bonds.

As we commented last month, we increased our exposure to Mining companies to 10%. A different story has been the evolution of these companies compared to gold and silver performance. While precious metal rallied due to the political uncertainty, these companies fell significantly, even on the day that gold made the maximums of the month. Unfortunately, we cannot have exposure to the metals directly in the portfolio. By the moment, we will take it as an anomaly, as we expect our investments to converge in line with both metals. That should be the normal behavior.

The position in Banco Popular did not help either. There are many that think they will need to raise capital again soon.

We have compensated these small ballasts mainly through an small tactical short in Eurostoxx which allowed us to retake our longs 1,5% cheaper.

Global Allocation Fund

Global Allocation Fund

Global Allocation Fund

See the full PDF below.