The Week in Review: Performance updates from Cabana’s CEO – April 24, 2018
Market insight and a highlight of Cabana’s year-to-date performance:
Cabana’s seven portfolios range from “Conservative” to “Aggressive” and include an income strategy and an “Accumulator” portfolio. Performance is as of market close on April 23, 2018 and is presented net of maximum advisory fees and commissions.
The Cabana Portfolios were mixed for the week. The Growth Portfolio was flat, while the Conservative Portfolio was down -1.40%.
Interestingly, our higher beta assets outperformed, despite an overall down week for equity markets. This is due to the surge in bond yields we saw almost exactly one week ago. The short-term effect has been a selloff in traditionally defensive assets like bonds, dividend payers and real estate. The bounce in yields eventually took down other equities as well. This is a minor replay of the events of early February. As soon as we noted that the broad equity markets had regained their 50-day moving averages and ten-year bond yields had stabilized in a range between 2.74% and 2.90%, the yields surged above 2.94% and touched 3.00%. This is the first time we have seen 3.00% on the ten-year bond since 2014. We discussed these rising yields earlier in the year and I will reiterate now that rising rates in and of themselves may represent a normalization of yields in response to demand-side growth and healthy inflationary forces – after a decade of prodding by the world's central bankers. In fact, the sharp rise in the ten-year yield, which is controlled by the market, helps to steepen the overall yield curve. The curve has flattened significantly this year as a result of the Federal Reserve raising short-term rates and the backend of the yield curve failing to keep up. A flat yield curve is generally bad and a steep yield curve is good. The downside to all this is that market participants across the board are having to re-assess relative value among asset classes. So long as demand is strong enough to offset corporate borrowing costs and earnings increase, we all adjust to the “new normal” and the bull market lives on. However, if these input costs (along with commodities) are too much to overcome and companies’ earnings begin to suffer, the bull will stumble and fall. It is often rising input costs that end bull markets. We are in the middle of earnings season and markets are watching closely for answers to these questions. What is concerning to me is that stocks are selling off precipitously right after report of strong earnings. It could be that we have already seen the highs in this now nine-year-old bull cycle. For now, we remain cautiously bullish.
Year-to-date net-of-fees performance:
ALPHA INCOME: -1.61%
Performance is presented net of the maximum advisory fees and commissions (2%). Numbers indicated with (+) for positive return and (-) for negative return.
-G. Chadd Mason, CEO
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