Capital markets took a beating in October. Equity, fixed income markets and crude oil were down materially in October. The trade spat between the US and China has had short-term negative implications for corporate earnings. More importantly, it has placed upward pressure on US inflation expectations (and interest rates) as Americans will begin paying higher prices for Chinese imports in 2019. As a result, bond yields shot higher in October as selling pressure continued in fixed income markets, and the volatility spread quickly to equity markets.
We believe much of the correction is over, however, we are likely to have several more choppy trading days. While our actively-managed products were each down in October by 6.9% (see below), they were both up over +3% on the first trading day of November alone. Notably, midterm elections are generally very good for equity markets compared to years without midterms as shown in the chart below, which compares the performance of the S&P 500 through March of the following year following midterms.
Asset allocation is key to long-term performance. I had an email following the recent release of our five new ETF-only model portfolios commenting that fees don’t matter and “hedge funds charge 3-4%, but outperform a lot of competitors over the long run.” I asked him to show me the data and I am still waiting for a response (there are a select few hedge funds that can outperform such as my former colleagues that now run Venator Capital Management).
If October was any gauge, US hedge funds were down 5.72% and global hedge funds were down 5.39% according to the Globe and Mail. Apparently those higher fees are justified by the belief that they better protect investors in falling markets, however, this is yet more proof that Warren Buffett is right. Our new ETF-only portfolios offer investors global and multi-asset diversification at a very low cost, thereby raising the likelihood of better long-term performance.
An overview of the performance of our actively-managed products is as follows:
|Instruments (% return)||Oct. 2018||2018||2017||2016|
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.
|Instruments (% return)||Oct. 2018||2018||2017||3-Year|
All figures are net of ETF MERs, however, they do not include AFINA management fees that will vary based on portfolio size. 3-year return is annualized return. Past performance is not indicative of future results. Refer to https://www.afinacapital.com/legal/ for full details and disclosures.
(1) The benchmark represents the Fidelity Global Income Class B Mutual Fund (FID2282.TO).