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 May 25, 2018 and is presented net of maximum advisory fees and commissions. The market was closed for Memorial Day on Monday, May 28.
Cabana Portfolios were mixed, but essentially flat during the holiday-shortened week. Our low-beta Conservative and Alpha Income Portfolios outperformed as a result of the drop in interest rates. They were both up slightly, while other portfolios were slightly down.
Markets have continued the multi-week march to nowhere. All major indexes have remained above technical support and the 50-day moving average. A stellar earnings season is now behind us and we seem to be trading on news. Each day brings a new crisis (or solution to the previous day’s crisis). Whether it is the trade war with China, denuclearization talks with North Korea or political crisis in Italy. U.S. interest rates fell back below 3%. I consider this the only fundamental factor worth mentioning, and as I pointed out last week, this pullback is overdue and could eventually provide some lift to the otherwise range-bound stock market.
Since markets seem to be focused on the day-to-day gyrations of politics and media rhetoric, I thought it might be beneficial to revisit some very basic philosophies that we follow here at Cabana. First, we do not ever trade on news. The reason for this is that by the time the news comes out, it is too late. Markets of all types are incredibly efficient. They immediately assimilate the new information, weigh its potential value and price assets accordingly. We do not claim to be so smart or so fast. Second, most “news” is entirely irrelevant. The news that is of importance will ultimately impact what does matter – interest rates and earnings! We watch this information constantly and when things change for the better or worse, we respond. We may not catch tops or bottoms of price swings, but we don’t try to either. What we try to accomplish is to consistently identify (in a general sense) where we are in the economic cycle and invest in the assets that are relatively attractive at that point. Then we build in hedges of assets that move in the opposite direction of our chosen assets. When we have it right, our selected assets will perform well and our hedges will underperform. In bull markets our hedges act as a drag on performance. That is fine by us because those same hedges reduce drawdown (or loss) when things get rocky. We believe that the key to long-term success and generation of wealth, is to avoid big losses if at all possible. This is not a perfect system, but it is simple and prudent. I hope this helps advisors and clients sleep well at night, regardless of the day's entertainment.
Year-to-date net-of-fees performance:
ALPHA INCOME: -1.09%
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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