Capital markets in January were rocked by fears of a slowdown in China and a weakening currency in Argentina that spread to other emerging market countries, and a continuation of uneven responses to additional Fed tapering.
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U.S. large cap stocks, as measured by S&P 500 Index (SPX) were down 3.46%, international developed equities were down 5% and broad emerging markets were down 6.5% (with China down almost 10%). Broad U.S. bonds were a refuge from the weak equity markets and performed well returning 1.5%.
Though volatility picked up and manufacturing output has weakened, the underlying economic environment and capital market liquidity remains stable.
Consequently, our market analysis system continues to indicate “risk on.” Dynamic allocations to healthcare, energy MLPs, high yield bonds, and broad bonds were positive contributors to the Julex portfolio returns in January, but the overall performance trend was still negative.
Entering February, most major asset classes exhibited weakened positive momentum with the major exception being the emerging markets where momentum had turned decidedly negative.
Most Julex strategies are still fully invested but are holding a more balanced portfolio managed to lower levels of expected risk. In the Income Strategy, we have maintained a core-satellite approach that is centered on a modest core allocation to broad bonds and bank loans with a new allocation to preferred stocks.
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In the emerging market space, we have pulled back exposure due to the dramatic sell-off in January. Within the U.S. equity arena, we have made modest shifts away from growth sectors.
DISCLAIMER: The investments discussed are held in client accounts as of January 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.