The stock market seems to be following the rule of unexpected, surprising outcomes that has prevailed during this whole political season. The markets were rock solid regarding two things during the presidential campaign: 1. They expected Clinton and 2. They wanted Clinton. The markets mirrored the FBI pronouncements (down when it looked like trouble, up when they seemed to exonerate). I foresaw Trump’s election as a 50-50 proposition with little upside if Clinton won (outcome already baked into the cake) and much downside if Trump won (unexpected disappointment). When I went to bed on election night I felt like a genius for keeping a conservative allocation (markets already down 5% on overnight exchanges). By morning I felt like a member of the Clinton campaign team.
What has happened since is the markets quickly decided they actually liked Trump after all and have shot up. We are now up for the year and the YTD gains have virtually all occurred since the election. Internal analysis on the supply demand profile shows that this old stock bull market likely still has months to run.
Here Is Where We Stand
I have been increasing our stock holdings, using the Day Hagan Dividend Fund which is now up very nicely for the year http://performance.morningstar.com/fund/performance-return.action?t=DHQAX. I have moved other stock fund money into Day Hagan since it seems to be right in the sweet spot of what is happening. So, we’re consolidating and simplifying.
We carry a large position in the Catalyst Hedged Futures fund. This fund moves somewhat contrary (and sometimes independently) to the stock market but its history is making money consistently. Review its history: https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/62827M821 It is especially gratifying to see what it did in 2008. The only market environment where it has struggled historically is one where stocks are shooting straight up (since election day it has dropped although still up nicely YTD). The only calendar year where it lost is 2013, which is OK. When the fund has lost money, it has always followed with an upswing. Its net effect on the portfolio is to temper losses, occasionally temper gains but make money in its own right nearly every year.
In the bonds, we carry positions in the Rivernorth fund and the Fidelity floating rate fund (http://performance.morningstar.com/fund/performance-return.action?t=RNDLX and http://performance.morningstar.com/fund/performance-return.action?t=FFRHX ). These funds are showing the ability to keep making money if/when interest rates start to rise. This is what we want.
Looking Back On The Year
It’s tempting to make the argument that we should have been strongly invested into stocks all year but the fact is, as stated, virtually all gains have come since the election. Of all the possible outcomes to plan for, the only combination that would have seemed implausible is Trump wins + market loves it. However, we are in that scenario and we will ride it with the fund combination that seems best suited to take advantage.
Please contact me to discuss your account or any aspect of the above.