The US stock market remained remarkably resilient in March. However, as of yesterday’s close, the S&P 500 closed below its 50-day moving average for the first time in 104 consecutive trading days, which was the 18th longest streak since 1928. We continue to find limited value in current stock valuations. Signs of a potential slowdown in US growth combined with a lack of attractive equity valuations, has us continuing to play defence.
We sold our positions in Cooper Tire & Rubber and Goodyear Tire & Rubber at the end of March after they reached our target prices in just under three months. As a result, cash and equivalents in the AFINA Optima10 currently represent 43%, versus 60% in the AFINA Affinity portfolio. While we may be at risk of marginally under-performing our equity benchmarks in the short-term, we believe that being patient with our dry powder will protect capital and allow us to take advantage of more attractive valuations over the next few months.
A slowdown in the US expansion is a growing risk that could challenge corporate earnings and stock market valuations in the coming months. Referring to the chart below, US commercial and industrial loan growth has slowed dramatically with quarter-over-quarter growth contracting in Q1/2017 for the first time since 2009.
An overview of the performance of our actively-managed products is as follows:
- The AFINA Optima10 was down 0.1% in March, and was up 23.9% in 2016 compared to the benchmark return of 14.8%.
- The AFINA Affinity was down 0.6% in March, and was up 20.6% in 2016 compared to the benchmark return of 14.8%.
|Instruments (% return)||Mar. 2017||2017||2016|
As of March 31, 2017. All figures are net of fees and other expenses. Past performance is not indicative of future results. Refer to https://www.afinacapital.com/legal/ for full details and disclosures.
(1) The benchmark represents a 50% weighting of the S&P 500 Total Return Index in Canadian dollars and a 50% weighting of the S&P/TSX Composite Total Return Index in Canadian dollars.