An economist walks into a pizzeria to order a pizza. The waiter asks: “Should I cut it into 4 pieces or 6 pieces?” The economist replies: “I’m feeling hungry right now. You’d better cut it into 6 pieces.” – unknown
Where are we, at the end of August 2019?
The above is an old joke and there are actually a lot of variations of it. What made me think of it is the “economist” chatter that’s out there about an inverted yield curve. In simple English, in case you are following it all, the yield on the 10-year Treasury is now lower than the yield on the 1-year Treasury. In a healthy economy, you should pay less for a one-year loan because shorter loans are safer than longer (less uncertainty). It is true that historically there is a correlation between inverted curves and recessions AND there is a clear correlation between recessions and bear markets. So, there you have it.
Fortunately, we have better indicators than the above for the beginning of a bear market. Bear markets take time to unwind and usually give some notice. You won’t know that a recession started until well after the fact. Further, the U.S. yield curve is affected by international interest rates, which very much are inverted and even show NEGATIVE interest rates. So, let’s say it’s a complicated path to go down.
The markets were down slightly in August, but I still see strength resuming, although it’s not clear when. We’ve had an up and down last 12 months but positive. The weakness in small cap stocks continues and it’s clear that for now, it’s more of a large cap world, although our VIRTUS small cap fund just keeps beating the larger cap funds.
Our fixed funds did their job which is to smooth out returns. I have been transitioning some fixed funds gradually to Blackstone and Starwood and expect soon to have another option – a high yielding REIT with a great track record going public on the NY Stock Exchange. I will tell you more as things happen.
How Did the Markets and our Funds Do in August 2019?
All index and fund returns are courtesy yahoo.com.
Here are the index returns and our fund returns:
|Russell 2000 (small co)||-5.07%|
|US Aggregate Bond Index||2.79%|
|ONEQ||-2.58%||Fidelity Nasdaq||Fidelity commission free ETF|
|IJR||-4.58%||iShares Small-Cap||Fidelity commission free ETF|
|FTEC||-2.26%||Fidelity Info Tech||Fidelity commission free ETF|
|FDIS||-1.79%||Fidelity Discretionary||Fidelity commission free ETF|
|FBIOX||-2.52%||Fidelity Biotech||stock mutual fund|
|FCYIX||-1.93%||Fidelity Select Industrials||stock mutual fund|
|FCNTX||-1.80%||Fidelity Contra Fund||stock mutual fund|
|FBGRX||-3.44%||Fidelity Blue Chip Growth||stock mutual fund|
|PSGAX||-0.82%||Virtus KAR Small-Cap Gr||stock mutual fund|
|FKDNX||-0.89%||Franklin Dynatech||stock mutual fund|
|CFRAX||-0.83%||Catalyst floating rate||fixed income mutual fund|
|EIFAX||-0.74%||Eaton Vance floating rate||fixed income mutual fund|
|FFRAX||-0.74%||Fidelity floating rate||fixed income mutual fund|
|GIREX||0.81%||Griffin real estate int rate||fixed income mutual fund|
|RNDLX||0.19%||RiverNorth Strategic||fixed income mutual fund|
|FAGIX||-0.69%||Fidelity Capital & Income||fixed income mutual fund|
|LENDX||0.20%||Stone Ridge Alternative||peer to peer fixed return m.f.|
|Starwood REIT||0.13%||July||real estate investment trust|
|Blackstone REIT||1.08%||July||real estate investment trust|
|Prime Meridian Real Estate||0.56%||July||private peer to peer fixed return|
|KIP, Kay Income Partners LP||0.56%||Aug||private mortgage fund|
Your investment return(s) for August 2019 was/were as follows:
We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.