Did you know that bitcoin was launched in a paper published October 31, 2008 by some form of higher intelligence calling itself Satoshi Nakamoto? We didn’t either. The still mysterious pseudonym’s detailed workings of the new currency, including the brilliant mathematical code that would operate it, were published the following January.

The first money business to deploy the new technology of record-keeping was the Medici bank in Renaissance Italy

Today, the enigmatic currency is somehow good for buying anything from plane tickets to food, and pretty much anything other than cannabis in between. There are even bitcoin cashpoint machines popping up around the world, though they’re typically located near the men’s room in hipster restaurants.

The first central bank was the Bank of England in 1694

Cynicism aside, bitcoin, with no entity backing it other than lines of code running on an otherworldly network of computers, has done quite well for a form of money only seven years old. And its growing utility has attracted attention – from poorly run countries like Argentina that see bitcoin as an alternative to their own rickety currencies, to well-run banks that see the shadowy Nakamoto’s creation as a disintermediation of their businesses.

The first bitcoin transaction was an experimental purchase of a pizza in May 2010

Of course, nothing says market acceptance like an ETF, and nothing says credible like the SPDR S&P 500. And, guess what? The “Spider Woman” herself, one Kathleen Moriarty, is busy trying to convince regulators that a bitcoin ETF would be appropriate for investors. With fund companies steadily trying to carve the market into finer and finer pieces, looks like folks in the know think it’s time for a slice of bitcoin. Wonder what Nakamoto would have to say.

What the markets have been doing…

Despite some poor stock performance from the first technology firms to report first-quarter earnings, all the major indexes ended the period on the plus side. Large-cap benchmarks like the Dow and the S&P 500 reached to within roughly 1% of the peaks they established in 2015 before falling back a bit, while the tech-heavy NASDAQ struggled to stay in the black. Leading technology-oriented shares fared poorly as traders were disappointed by earnings and revenue gains they had hoped would be stronger.

Overall, a combination of easily exceeded earnings expectations beyond the technology space and the need for some investors to boost their equity weightings were behind the rally. Energy stocks actually managed to rally strongly despite falling crude prices after news over the weekend that major oil exporters had failed to agree to cap production.

Index Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 18003.75 +426.79 +3.32%
S&P 500 2091.58 +43.98 +2.33%
NASDAQ 4906.23 +55.54 -(2.02)%

Treasury yields rose again as the positive tone in global equities sent investors into higher-risk assets. Housing data were mixed, with new housing starts and permits falling sharply in March while existing home sales rose more than expected. The investment-grade and high-yield corporate bond markets were flat, though both sectors continued to trade with a supportive tone. Municipal bond returns were relatively unchanged as ample demand for new issues was offset by Treasury weakness.

Fixed Income Yield Two-Week Change
2-Year Treasury 0.82% +0.13%
10-Year Treasury 1.89% +0.16%
30-Year Treasury 2.71% +0.15%
Bloomberg Corporate Bond Index 3.12% -(0.01)%
30-Year Municipal Bonds 2.59% +0.04%

Misery has company, part two…

For the trailing 12 months ended February 2016:

  • 18 Morningstar 500 funds suffered outflows of at least 40% of assets under management
  • 61 Morningstar 500 funds suffered outflows of at least 25% of assets under management
  • 168 Morningstar 500 funds suffered outflows of at least 10% of assets under management


Quote of the Week…

“GE has been in business for 124 years, and we’ve never been a big hit with socialists.”
– Jeff Immelt, Chairman and CEO of General Electric

Number of the Week…

40: The number of corporate defaults worldwide so far this year, more than during the start to any year since 2009. The U.S. is leading the race to the bottom, accounting for 85%.

What Fund Architects is doing…

We suggested last period that our next move might be to move back to equities when the time was right. Well, lo and behold, the time is right. The big news for the Fund Architect Portfolios this period was our decision to blow out the outsized Treasury position mid-month. Typically we like to wait till the end of the month when we get new signals, but this trade was too compelling to wait. We think we made the right call. Not only did the Portfolios lock in a terrific gain from what was essentially a hedge position, our former holdings have fallen off a couple percent or so since we sold them,

Which means the Models are sitting on a pretty good cash position till we trade again the first of the month, when we’ll almost certainly be fully invested in equities again. Right now, our sector rankings have Telecom and Infrastructure (mostly energy, transportation, and utility companies) at the top. Unless something changes, it’s likely we’ll have the Portfolios invested in those two spaces at the beginning of May. It’s worth noting that Energy is moving toward the top of our list. It has, in fact, been the highest returning sector on a look-back basis. The volatility in this sector, however, knocked it down on our rankings.

It’s also worth noting that we haven’t been this aggressive toward equities since last spring. For the last nine months or so, the Portfolios have been overweighted toward cash, or low to negatively correlated assets like Treasuries, utilities, and consumer staples.

On the fixed income side, meanwhile, the Portfolios are holding a good position in Emerging Markets Sovereign Debt, and it’s still a top ranked sector for us. Senior Bank Loans are next up on the rankings, and it’s likely we’ll be moving some cash there soon.

From here, we see real opportunities in the sectors that have underperformed over the last year and a half. It’s going to be an interesting ride.

The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.