2019 Performance
Dear Investor,
Our Tactical Asset Allocation strategies, relative to the S&P 500, MSCI ACWI as well as the Credit Suisse Hedge Fund indices underperformed the benchmarks in 2019. Our typical 2019 YTD returns were in the +12-15% range for our GTAA as well as USTAA strategies, while the S&P 500 returned in excess of 31%. While we can always argue that our (lower) risk profile is not to compared directly with S&P 500, most of our clients certainly keep the global equity indices in mind as a benchmark in our quarterly portfolio discussions with them.
Our managed separate accounts have also posted similar performances, of course depending on individual stock position risks, nevertheless well below that of the S&P 500 as well as the MSCI ACWI indices. I am sure your individual Portfolio Analyst reports (sent to you in PDF via email) and our subsequent discussions with you should provide more clarity.
So what caused this underperformance? We did beat the equity markets in 2018, handily posting positive performance. However, we continued to remain rather bearish on US equities in the first two months of 2019. Notably, we under-performed the S&P 500 in January (which was up 8% that month alone), and when we remained bearish until March 2019, when we began to catch up with the market. It is in these turbulent times of bull/bear uncertainties that our TAA strategy helps in smoothing (sometimes under-performing but minimizing losses for safety) out client portfolios.
As of this writing, our proprietary models indicate that the probability of a bear market is low under 5%, while the market overall valuations by any measure is on the high side. We remain conservative in our portfolio allocations with 50% in conservative sectors such as staples, healthcare, utilities and real estate and 6% in bonds. 10% of the portfolio is in the financial sector, 15% of the portfolio in technology and communications, with 3-5% exposure to Emerging Markets. We believe that vigilant re-evaluation of market risk, more or less on a daily basis, in this environment is warranted and our conservative stance will be rewarded in the next few years.
As always, thanks for your trust and staying invested with us!
Best regards,
Sri Nagarajan
Managing Partner