“Auld Lang Syne”, as you might know, is an old Scots poem set to the tune of an old Scots folk song. Which means the old Scots words are incomprehensible anywhere outside of a few pubs along the Firth of Clyde. As a result, the song’s title has been translated into standard not-Scots English as “old long since”, “long long ago”, “days gone by”, and “sorry, we’re out of McEwan’s”.
We twa hae run about the braes,
Yet, somehow, Robert Burn’s little ode to things old is used around the English-speaking world nowadays as a way to say goodbye to the previous year, traditionally at the stroke of midnight. By some kind of logical extension, it can also be sung as a farewell at other things ended, like funerals, final calls, and open-outcry trading.
and pou’d the gowans fine;
So it passed that the penultimate New Year’s Eve 2016 rang out trading forever on the floor of the New York Mercantile Exchange in lower Manhattan, the latest step in an unstoppable move toward electronic trading. In its glory days, the NYMEX — which dates back to the founding of the Butter and Cheese Exchange of New York in 1872 – mashed more than 1,000 ambitious young men into its pits to shout, throw punches, and arrange trades through a language of hand signals more arcane than an old Scots poem.
But we’ve wander’d mony a weary fit,
While few would suggest that open-outcry trading is a particularly inspired system, old timers like to argue, nostalgically perhaps, that the floor’s human input can be a very good thing for guiding customers. Not-so-old-timers unsympathetically counter that screen trading results in superior execution and makes markets fairer and more efficient. Doubtlessly true. But it’s hard to imagine that the big commodity floor’s times will soon be forgotten. Here’s to old friends.
sin’ auld lang syne.
What the markets have been doing…
After teasing the closely watched 20,000 level early in the period, the Dow Jones Industrial Average fell back a bit and recorded its first weekly loss since the beginning of November. Somewhat ironically, stocks suffered most of their losses on pre-New Year’s Wednesday as institutional investors rebalanced their portfolios to reflect recent gains. On the day, the S&P 500 recorded its largest decline (-0.84%) since October.
The few economic reports released during the holiday-shortened weeks appeared to have little effect on trading activity, though sentiment may have been dampened by news that that pending home sales declined to their lowest level since the start of the year. On Tuesday, the Conference Board reported that its gauge of consumer confidence had reached its highest level in 15 years, while data later in the week showed weekly jobless claims remaining at a low level.
|Index||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
Bond prices, meanwhile, rose as intermediate- and long-term Treasuries were boosted by surprisingly strong auction results. Investment-grade corporates were mostly quiet, despite “window dressing” by institutional investors in preparation for year-end reporting. High yield bonds also saw little in the way of significant news or market movement, while the tax-free space generated positive returns.
|Fixed Income||Yield||Two-Week Yield Change|
|30-Year Municipal Bonds||3.08%||-0.13%|
Where have all the hedges gone…
Investors have pulled money from hedge funds for four consecutive quarters — the longest stretch of outflows since 2008
Quote of the Week…
“In some cases, you’ve just seen the emperor has no clothes.”
Seth Magaziner, Rhode Island General Treasurer, on the state’s decision to halve its hedge-fund investments
Number of the Week…
The approximate proportion of holiday purchases that are returned
What Fund Architects has been doing…
Who’d have thought that after the stock market’s worst start to any year on record in 2016 that the S&P 500 would end up with a 9.5% annual return? Or that the Dow would close within easy striking distance of 20,000? Not many we suppose. After all, the S&P touched 1829 in mid-February, more than 400 points lower than where it would close the year. The first couple months of 2016 were indeed pretty brutal for most investors.
We’re pleased to say the experience for Fund Architects’ investors was far more pleasant. Indeed, the Portfolios performed very much in line with expectations. Nobody wants to “not make money” in the markets, but “not losing money” makes for a better experience over the long run.
Here at the beginning of 2017, we think the Portfolios are well positioned to participate in this favorable cycle while providing stability in an environment that will surely feature some volatile periods. In the Global ETF Portfolio, we’ve repositioned the 30% base assets from BulletShares to U.S. equities, primarily large cap. Among the 70% active sector assets, we exchanged mid-cap U.S. equities for large-cap and maintained our position in Global Industrials (EXI).
In the Conservative ETF Portfolio, we repositioned the investment grade BulletShares position into high-yield, and converted the 35% cash position to the SPDR High Yield Bond ETF (JNK). We continue to maintain our position in Bank Loans, which we’ve held since November.
For the full year 2016, the Fund Architect Portfolios performed well relative to their benchmarks, and did so with much less risk along the way. We’ve every reason our strategy will continue provide a solid investor experience across what promises to be an interesting 2017.
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.