November was a significant month for our strategy when one looks “under the hood”. After more than a year, it was the period where our momentum-based allocation switched to underweight fixed income/safe assets and signalled a broad long position in many global equity indices (not just the US). We’re up 0.8% for the month buoyed by rallies in risk assets ETF that we hold, namely US large-cap, US tech, Europe Large Cap and even Japan. We spoke about a possible risk rally gaining traction over the yearend; November keeps us in the green on both the fund and that prediction. Let’s see if the rally continues till year-end, making 2019 a big year for both Bonds and Stocks. Speaking of Bonds, however, their upward strength has waned significantly. Even Gold which was evidently getting some safe-haven buying interest has shrugged off its nascent bout of uptrending price action displayed earlier in the year. Hence we have gotten out of Gold and lightened Fixed income positions while adding more to EU and US large caps ETFs. Real Estate and Tech remain firm in our portfolio, just like their price uptrend. At heart we’re a trend following fund hence one must “ignore” valuations – so goes the folklore – but we still have an eye on US equity valuations. They’re not cheap at all, however, ROW (rest of world) can be considered slightly cheap, especially UK and certain sectors of Europe. These foreign markets obviously do well if the US dollar weakens – which is what has been happening over the past couple months. A weakening US dollar could be a tailwind for the Non-US equity space over the next few months.

November 2019 Momentum and Volatility scores for the Passive Allocator Universe


MSCi EAFE Index monthly chart with 12 and 3-month momentum.

The MSCI EAFE index (it tracks major Non-US developed equities) is developing upward momentum with both short and long term readings showing positive readings. Besides this, there is a considerable valuation gap  – obviously explained to a certain degree – by different economic climates in the two regions. This gap has room to revert to the mean. The chart below shows the relative performance of US vs EAFE: their relative value time series is at multi-year extremes.

SPX vs MSCI EAFE ratio.

Gold daily price with Long term Momentum readings

Gold has been backing and filling its first uptrend wave. Whether the long term trend will continue is now hard to forecast; one would imagine the asset needing financial systemic concerns and/or surprise inflation readings coming in, to give Gold a further boost. Its long term momentum is still strong but short term we’re moving sideways. Volatility too is realizing lower values over the past month. This could very well be a pause before “wave 2” of the upmove. We will get back into Gold if short term momentum strength resumes, for now we have booked profits and gotten out of the shiny metal

Happy Investing
Passive Allocator Fund Team