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Rockanomics

Rockanomics - February 2016

Flat. It’s the one word that seemed to come to mind when we looked back on February’s finances. Mind you given the new sport of downhill skiing the market seemed to be enthralled by a month before, flat probably wasn’t such a bad thing!
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Rockanomics

February 2016

What was?

Flat.

It’s the one word that seemed to come to mind when we looked back on February’s finances. Mind you given the new sport of downhill skiing the market seemed to be enthralled by a month before, flat probably wasn’t such a bad thing!

And so a (mostly) flat February it was overall as the U.S. finished up 0.6%, emerging markets and the Middle East were up 0.1 and 0.8% respectively and world markets on average were down just over 0.5%. Asia managed to recoup all of its early month losses to finish… you guessed it…flat. Notable outliers to the flat theorem (yes unfortunately there are always rebel children) were European large caps and the ASX 200, down 4% and 3.2% respectively.

Something worth mentioning is that the USD dollar (traded very popularly through the dollar/yen currency pairing) took a marked 6% tumble during the month. Sentiment is that the U.S. Federal Reserve is increasingly swayed by external (to the US) market conditions and may now delay or not go ahead with their original rate hike plan, devised last December.

The falling dollar no doubt provided some much needed ammunition to the resource space (typically priced in USD) as the Bloomberg Commodity index rallied from yet another new low in February to finish….drum roll please…..flat. Nice change at least.

The black gold, powered by an evergreen hit remixed and titled “0oops oil did it again”, charted up another 28% bull run after crashing to YET another bottom. Oil trading is definitely not for the faint hearted as bulls, bear and pigs (a genuine Wall Street mammal group we kid you not, but not one typically bestowed with the reverence of the other two) got well skinned over the last two months, all caught on the wrong side of price swings.

Real gold shot up another 10% and is now at its highest level in a year. Industrial metals like copper and iron gained as well, leaving some to ask if the bottom in commodities is in. It may be too early to tell and let’s keep in mind that precious metals (historically and still prized as a safety play in times of turmoil) make up more than 15% of a commonly quoted indicator such as the Bloomberg Commodity index. No prizes for guessing which gold is currently providing support to that measure!

Locally the ASX 200 finished below the 5000 point mark despite another mid-month attempt to go above, which eventually ran out steam. A closer look at the market revealed an almost parabolic, double digit gain for the ASX gold index! Price gains in other metals helped drive the much maligned mining index up 13% for the month! Materials, resources and industrials went up between 4% and 8%. Last month’s darling – consumer staples – and its cousin, consumer discretionary underperformed the overall market. Is this some sort of proof that a “risk-on” sentiment might be making its way back into the market? Technology and financials however, were the worst performers for the month, both skidding 6.5% each and both dragging down the overall index.

Private Wealth’s performance too didn’t detract too much from the overall “flat” theme. Fixed income and property allocations were just that on average. So too were currency hedged exposures as a rising Australian dollar helped bring those investments back to even. Global exposures did a tad better to finish up a 1.5% higher while Asian allocations subtracted from our overall performance, falling 4%. While micro and small-cap shares pretty much tracked the overall index amongst local investments, mid-cap companies did a little better to finish just a smidge above flat.

What now?

As we’ve mentioned in our previous articles (and it does bear repeating), we have to a large extent anticipated this ongoing volatility and would be remiss to say we see this abating any time soon. As such, our portfolio positioning continues to reflect this view with safety and capital preservation being the foremost priorities for our clients.

What's that?

Short selling.

With the kind of criticisms sometimes hurled at short sellers akin to calling for witches to be burnt at the stake, you could be excused for confusing short-selling (or shorting) with some black art! Unfortunately it’s a lot less exciting than that (unless you’re the profiting short of course!) and in fact of the most common ways to bet on a falling share price. The short of it– you sell a share high and buy it back low, and profit from the difference in prices. Certain mechanics aside, the exact opposite of what one would do when going long on a stock – the more traditional way of investing for long-term growth.

Typically associated with trading and speculating and less with investing, and notwithstanding short-sellers having a bit to smile about the last two months, shorts provide a much needed check and balance to investors’ over-exuberance. When ethically practiced, short sellers ask the hard questions no one (invested) typically likes to. How else would scandals/frauds such as (amongst many others) Enron and the ever inflating US housing market have been brought to account and back to earth?

Resources

Oh dear, there's nothing here. We aimed too high and fell short. We flew too close to the sun... Or this is a simple mistake and we just need to plug a few things back in or jiggle a few cords.

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BlueRock is a certified B Corp business.
Does that mean we didn’t make the ‘A-Team’? Far from it; landing a ‘B’ in this case is an affirmation of our commitment to being “a force for good” in the corporate arena.