My performance in Nov ’16 – Trump!Posted: 2016-12-03
Trump won. Already, less than a month in, it has a somewhat inevitable feel to it. After Brexit I don’t think I can be shocked by politics any more, but from a market-watchers’ perspective the reverberations haven’t all been what I expected.
I had thought the USD would fall a bit. It hasn’t. Well, OK, it fell about 2.8% versus Sterling but it’s up against the Euro and the Aussie.
I had thought US equity markets would fall (from protectionism, policy freefall, etc) but in the shower the next morning the biggest driver seemed to be Trump’s seeming determination to reduce US corporation taxes to 15%; the subsequent market rally suggests I’m not the only person focusing on the impact this could have on equity valuations.
I hadn’t really thought about bonds. But of course (hah! Ed.) with Trump suggesting a massive increase in the US fiscal deficit and national debt, along with a potential infrastructure boom, interest rates are on the way up. The US bond indices fell almost 3% in the month, the third month in a row that bonds have fallen in the UK and the US. UK bonds, which account for 20% of my target weighting, are down almost 9% since August; this alone has hit my portfolio by about 2% over the last three months. But let we become too fussed by end-of-the-bond-bubble chatter, bonds are still up during the year.
From the point of view of this UK-based investor, the three most striking market movements last month were:
- Sterling rose. Against the Euro by over 5%; against USD and AUD by about 3%.
- Bonds fell. Bonds fell everywhere, by between 1.5% (Oz) and 2.8% (USA).
- US equity outperformance. US equities rose 4%; UK equities fell 1.6%. This divergence in one month is unusual. Oz equities rose too for reasons I don’t know, but suspect it was a recovery from previous month dip.
Overall against my global exposure, the biggest factor was the fall of overseas currencies, which hit my portfolio by 2.4%.
Though the UK market (both equities and bonds) fell by only 1.6%, I am pretty highly leveraged in the UK. UK equities and bonds account for a gross 60% of portfolio, but almost half of this is borrowed, resulting in a net UK exposure of 35% of my portfolio. This almost 2x leverage (60/35) means the -1.6% UK market fall hits my portfolio by around -2.8%. Thankfully the reverse is at play in the US , where the +4% equity market gain is amplified by my (smaller: 55/40) leverage. The weighted average of these movements was a 0.3% gain across the portfolio. This wasn’t nearly enough to compensate for the currency impact, resulting in an overall market drop of about 2.0% for my target exposure.
How did I actually do against the 2% market fall? Not quite as badly. My portfolio fell by 0.5% in GBP. The first fall in ten months, after a pretty extraordinary year (in pound terms). And actually I was expecting
Just one more month to go to complete the fourth full year of my monthly tracking. Barring upset, I’m in a position to confirm a 12% compound annual return over four years, and a Sharpe ratio of 1.5. Fingers crossed.