In these posts, we take our monthly fund factsheet commentary and extend on it with some thoughts and charts. Passive Allocator’s portfolio allocation depends purely on Momentum calculated in a quantitative/mechanical way, however prices always move due to some underlying cause. No one really knows the cause but it’s fun to guess!

Our portfolio’s highly defensive stance helped us out in June albeit in an indirect manner. It’s not that equity markets took a negative turn, rather our 7-10 yr US Treasury ETFs rallied due to the Fed’s dovish remarks. This helped our fund clock a 0.53% gain for June 2019. The 60/40 benchmark – in our opinion – rallied much more due to the same dovishness exhibited by US and even EU central banks. It also caused gold to spike up: it seems the “easy money” regime of a few years back is poised for an encore. All fixed income assets have been rallying since a few months now. There is something the gold and fixed income markets are pre-empting, this could be the reason for fixed income assets rallying across the globe. Economic growth remains strong in the US but not so strong in EU, UK and Japan. Having said that, global equities also have displayed much less volatility and steady upward momentum over the past month. US equities have sustained a new high breakout – this is usually a solid momentum signal. Our Passive Allocator strategy uses these signals for allocation, so as per our policy we have added to our equity positions by taking some profits in our US treasury positions. A quick glance at currencies is warranted as we have EUR and GBP displaying significant weakness against the USD. GBPUSD seems poised to break lower than 1.25, at least based on price chart technicals. Back to our portfolio: it now looks more like the 60/40 benchmark although we’re still underweight equities. We continue to hold our gold position given that its positive momentum has been firmly established.


Passive Allocator Strategy Momentum & Volatility score table for June 2019

2019 has been a good year for fixed income assets. Looks like the 2018 reflation trade itself was a “false breakout”, with easy central bank liquidity returning to the plumbing. The chart below shows the price performance of our core Treasury holding – Vanguard’s VDTY ETF. In a similar vein, even investment grade & high yield bonds have had a very decent 2019.


VDTY ETF Price Chart (10 year US treasuries)

In accordance with UCITS rules against direct commodity exposure, we instead use the iShares gold producers ETF called IAUP . This Asset space has broken out massively in the past month, funnily enough just when crypto-assets have started rallying again. Gold and Bitcoin rallying together just when central banks, once again, make solid reiterating statements against their respective Fiat currencies. Anyone else see the pattern here?!


IAUP Gold producer ETF price chart

Just on the UK economy specifically, we see clear footprints of weakness due to Brexit uncertainty. the FTSE100’s valuation is still cheaper than peers, but moreover the GBP trade weighted currency index is now at multi-year lows. Political uncertainty is keeping risk premiums high for short term.


GBP currency trade weighted index.

Happy Investing
Passive Allocator Team