Global Allocation commentary for the month ended May 31, 2017.

There is very little to highlight about this month of May. Basically nothing.

It seems markets are in a phase where they pay no attention to any news. It doesn´t matter whether it is a terror attack in London or the possibility of a conflict with Korea. Markets are completely indifferent.

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Trump attacks some European countries, namely Germany, for their small contribution to NATO budget, but more importantly because of the balance of trade with the USA. At the same time, he signs an armament agreement with Saudi Arabia of unpredictable consequences (Our Lockheed Martin shares have profited from that). In Brazil we had a big shock, but it seems we haven´t even noticed. In Spain we have a new corruption case every day and the outcome of the Socialist party primary elections was the worst from an stability and economic point of view.

Volatility is beating record lows. This makes investors have an excessive sensation of security, which leads to complacency. And that is not positive at all from our point of view. As we use to say, volatility and risk is not the same, and if the former drops, the latter increases.

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The Euro has gained versus the dollar, especially because of the expectation of less expansive monetary policies. But this week we will see how Draghi explains again that we have no inflation and that the ECB will keep buying bonds and will maintain negative rates. Moreover, the comments from the ECB regarding the worries about the funding capacity of some countries if yields rise has provoked a partial recovery of the month´s loses in European Government Bonds.

In the first days of the month we slightly increased our exposure to equities while reducing our bond exposure. In the latter part of the month we have decreased our exposure to equities to end with less exposure both to bonds and equities.

Global Allocation Fund

We keep the other positions as they were. Our portfolio seems a little boring now. This is due mainly to the decorrelation of the different positions, which we find very valuable.

Global Allocation Fund

See the full PDF below.