Equity markets had a correction in September from a broadly overbought condition. So far, this correction is mild if we look at performance during previous months.
Generally the excuse was a FED meeting which delivered on the forward guidance but was ambiguous regarding how long after inflation trespasses 2% will the FED stay on hold. We think this ambiguity is very well calculated by the FED, because if USD kept falling fast, we could see rather soon some inflation prints close to or above 2%. We think the FED needs inflation to be below 2% for its new policy to have a real effect on markets. Thus, we have seen a come back in the USD and some pull back in the AUD and NZD.
In the sanitary front news are not very encouraging in Europe and we expect this, together with US elections uncertainty, to keep volatility relatively high.
September has been a very positive month, led by the turnaround in USD and certain weakness in AUD.
Those were the bigger contributors, but every single pair within our universe had a positive contribution during the month. As we have been commenting, this volatility environment means that we are able to find more opportunities which take less time to be closed, meaning more rotation within the portfolio.
This is giving us a positive āintrinsic carryā which is contributing a lot. Thus, the big performance in September was not preceded by a drawdown, which would be normal, but by a lateral movement. As we had mentioned, the positioning was tilted towards risk off and the portfolio has exhibited negative correlation to equities lately. By construction, risk has been diminished during September, but we still have a slightly risk off stance.
Going forward you should expect returns that are uncorrelated to any traditional asset. Even as risk has been diminished, current portfolioĀ“s information ratio looks terrific.
Below we show you the October cards of all our funds.
As always we remind you that we are at your disposal for anything you may need.
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