MLM Symmetry™ - Quarterly Commentary
   2017  |  2016  |  2015  
  Mar | Jun

MLM Symmetry 2017 2nd Quarter Commentary

The MLM Symmetry Fund rose 0.8% (gross) during the second quarter of 2017, taking the compound annual rate of return since inception in September 2014 to 4.8% (gross). This compares to the MSCI World annualized return of 6.0% and the Barclays U.S. Aggregate Bond Index annualized return of 2.3%.

The Investment Risk side of the portfolio again made gains as equity and credit markets strengthened. We wrote last quarter that global growth looked to be picking up in a fairly solid and synchronized fashion, and this continues to be the case. Manufacturing and Services surveys are holding at levels commensurate with above trend growth rates across large parts of the global economy. For the first time in a while having a value bias to equity selections has been rewarded. Over the past year our stocks are 5% ahead in the US, 7% ahead in Europe and 4% in Japan. If you squint a bit, it almost looks like some early cycle pricing dynamics, odd as that sounds. The Price Risk side was hurt in currency and fixed income markets, as a series of lower than expected inflation numbers in the USA and some hawkish central bank turns overseas reversed some of the trends in place.

The Symmetry portfolio, as we've explained a few times (here and here) aims to capture a broad set of risk premia in a framework of robust portfolio construction. On the Investment Risk side, we want to participate in global growth through equity and credit markets - accessing the equity risk premium through a globally diversified portfolio of value and momentum names, and tilting away from the megacaps. This type of investing is supposed to be slow and steady; we don't think the premia are enormous, but we do think they are durable. We anticipate that over a long period "value" will add a couple of percent per year to the basic benchmark returns, with momentum and size biases similar. The way we access these is a bit different, and we think adds a bit more. The diversification works as well. The Investment Risk return over the past year has been in line with these expectations and we believe it is the right way to approach capital markets over the long term. The Price Risk side has gone through a tough spell over the last year, but over the medium term is a risk premia that long term investors in general are under exposed to. It tends to perform when periods of stability give way to instability, and risk premia widen. Taking stock of the world today, the thing that really stands out is the slimness of risk premia wherever you care to hunt for them. Implied volatility across equity, bond and currency markets are at their nadirs. Credit spreads are tight, for both junky companies and junky countries. Corporate lending terms are easing. It is hard to see things continue to grind markedly tighter from here. Maintaining the balance in portfolios at times like these is one of the hardest things for investors to do. It is tempting to add exposure to things that have done very well over the recent past, extrapolating out another few years of the same. The tough thing is - when risk premia get slim and investors keeping adding, the forward looking return distributions start to skew negatively. The extrapolations leave little room for disappointment or error, and the exit doors get narrower. Don't be tempted, at some point the silver linings are priced and it's just the clouds on the horizon.

For further information please contact:
Raymond E. Ix, Jr.
Senior Vice President