The performance wagon

Fri, 20 Oct 2017 10:19:44 PDT

by Scott Ronalds

Our two best-performing funds of late have been our Global Equity Fund and our Small-Cap Equity Fund. Our Global Fund is up 17.8% over the past 12 months (as of September 30) and our Small-Cap Fund is up 11.6%. Both are running well ahead of their respective indices.

But we don’t focus on short-term numbers at Steadyhand. I felt dirty just writing this last paragraph. My point is to show that performance comes in spurts and cycles. The two above-mentioned funds had underperformed prior to the period referenced. Our Equity Fund, instead, had been pulling the performance wagon.

Over periods of one or two years, performance can be totally random. It’s less a function of a manager’s skills and more a function of investor sentiment, luck and other arbitrary factors. We need to assess funds and managers instead over periods of five, ten, fifteen years.

In a well-diversified portfolio, different funds will pull the performance wagon at different times. Our job as investors is to keep in mind that not all parts of our portfolio will be running at the same clip. We don’t want to shower too much praise on our stud horses, and we want to feed our tired ones.

Right now, our fixed income horse is in the barn while our global equity horse is in the winner’s circle. It’s important to not get too low or high on either one. Rather, it’s a good time to make sure your asset mix is in line with your targets (which may require some rebalancing) and keep your eyes on the longer trail ahead.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

What's up with the low volatility?

Wed, 18 Oct 2017 09:50:34 PDT

by Scott Ronalds

There are many hot spots around the globe right now: North Korea, Trump, and Catalonia to name a few. In the face of it all, markets keep climbing higher.

This, in itself, isn’t unusual. Markets are unpredictable and erratic in the short term. What seems remarkable to me, though, is the low volatility we’ve seen, especially considering the view amongst many professionals that stocks are fully valued, if not expensive. Stock markets have been moving in a much lower-than-normal range, particularly the granddaddy of them all, the S&P 500. The CBOE Volatility Index (VIX), which is a gauge of near-term stock market volatility, fell to multi-decade lows in the summer and hit another fresh low earlier this month.

To be sure, there are some positives to point to: the global economy is growing at a nice pace, interest rates are low (albeit rising) and inflation is tame. Still, it just feels a little weird.

I’ve heard the same comment from other investors, as well as some clients who are feeling uneasy. They’re asking if we’re doing anything different in our portfolios.

We haven’t made any notable changes of late. We remain cautious, though, and this is reflected in the positioning of our Founders Fund, where we’re holding a lower stock weighting than normal, a much lower bond weighting, and considerably more cash than usual (see our Outlook for further details). Our equity fund managers also have a cautious outlook. They’re focusing on well-financed companies and avoiding those with high valuations.

These are good times. It’s been dubbed the “Goldilocks economy” (not too hot, not too cold). It’s important to enjoy it, but we should also be prepared to see some bigger swings in the markets going forward. Those bears will be back for their porridge at some point.

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