Have we seen a sudden paradigm shift in July? Or a final culmination of economic factors, that were just brewing in the background all these months? We think it’s the latter, and we further assume things are just getting started. A few important points to note for July: the most obvious was the FED embarking on a rate cutting cycle. Yes, we just stuck our neck out and claimed that this isn’t a “One and Done” event (as the FED would like us to believe), rather a new interest rate cutting cycle that could see much lower rates across the board. The bond market has been eyeing this all year long, with positive momentum building up substantially in this asset class. Our fund too has been overweight fixed income pretty much all of 2019. July saw us add a little more to bond ETFs, due to solid positive momentum in long term US Treasuries and Investment Grade Credit. We rebalanced out of risky positions in US Equities. The Fund made a gain of 1.11% for the month, most of it attributable to continued positive performance in fixed income ETFs. The next important point – rather a clue of what is to come – was the ECB showing renewed conviction to easing monetary policy on their side. Last but not least, the IMF downgraded its forecast for global economic growth. Emerging markets / Developing economies’ forecasts took the biggest hit in the report. All these factors support fixed income assets fundamentally. Our portfolio is now tilted towards a defensive stance again, with more than 75% in high quality fixed income assets. We also hold a sizeable position in Gold, as its positive momentum is only getting stronger.


Passive Allocator Strategy Momentum & Volatility score table for July 2019


Global GDP forecasts are hitting decade lows. Source: Bloomberg Economics

The IMF lowered its forecast for 2019 global GDP growth to 3.2% in its July World Economic Outlook update. Trade Wars, Brexit and Geopolitical tensions were mentioned as risk factors. Bloomberg Economics’ global GDP tracker suggests the world economy expanded at an annualized rate of 2.4% in 2Q.


Gold (priced in USD) spent July backing and filling its recent breakout over 1370 levels

A FED rate easing stance provides tailwinds to gold – and this time seems no different. The precious metal is shining, and displaying price action that is long term bullish.


Daily chart of Investment Grade USD Bond Tracker (Ticker LQDE)

High positive momentum with low volatility – the ideal asset class for Passive Allocator. Every year has one or the other asset class taking on these beautiful characteristics: this year it’s been IG Corporate Bonds. It looks like a clear reach for yield by liability driven investors. One would be interested in seeing whether this trend plays out. As part of an overweight in Fixed income, our fund has decent size positions in these ETFs.

Happy Investing,
The PA Fund team