MLM Symmetry™ - Quarterly Commentary
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MLM Symmetry 2017 3rd Quarter Commentary

The MLM Symmetry Fund rose 2.8% (gross) during the quarter, taking the compound annual rate of return since inception in September 2014 to 5.4%. This compares to the MSCI World annualized return of 6.5% and the Barclays US Aggregate Bond Index annualized return of 2.4%.

The Investment Risk side of the portfolio generated the returns as the global growth pickup that we've been writing about this year continues to gather steam. Our value oriented equity securities, one of the ways we participate in the global economic growth engine, outperformed the benchmark indices handily in all the areas we invest. Increased growth dynamics played a role here, particularly in U.S. companies like Valero and Marathon. Emerging markets, which are often more levered to the growth cycle also did well, investments in Chile and Peru adding to returns. In our credit portfolio, default rates are very low and spreads continue to tighten. In September, we expanded the scope of the Investment Risk premia funding we provide systematically in the credit markets, accessing a broader and more diversified spectrum of the economic capital structure. The broader pool now includes participation in investment grade and high yield credit, emerging debt, convertibles, preferreds, bank loans, and mortgages, amongst others. The Price Risk side of the portfolio is designed to capture the risk premia that are generated from businesses shedding some of the external price risks they face. This risk premia tends to be higher when there is more uncertainty in the world. This past quarter has seen volatility across major markets drop to the lowest levels seen in years, corresponding the Price Risk side finished about flat on the quarter. Given its diversification benefits in rougher seas, not a bad result.

We wrote last quarter about the slimness of risk premia. Today they are slimmer. At its root in our view are financial conditions. One would think they have tightened as the FOMC has raised interest rates over the past couple of years, and in September announced the beginning of the process of balance sheet normalization. Conditions are not tighter, if anything they have eased a chunk. The cost of equity capital is low, the spreads investors require to fund risky corporates are tight. An incredible example of this is a recent Iraqi bond auction. Iraq came to market with a 6 year bond looking for $1bn and found an order book for 6 times that. At a 6.75% yield. The global economy has picked up and animal spirits have returned. In this type of environment whether the Fed rate is 1.25% or 1% is of little matter - if a business feels good, they will invest. The Fed staying on a softly, softly course is fueling this, and by design. It's a policy goal. But, it's a fine line being walked here. The lack of inflation is concerning to policymakers, to our mind a series of one off drops in things like cell phone plans and a broader drop in medical inflation as a result of policy changes is not reflective of the strength of the economy. The big surprise here would be that the new normal isn't that different from the old normal, and that the economic models that say things are transitory and wage growth will return, are not to be consigned to the trash heap just yet. If the fiscal agenda of the current administration comes to pass in the next few months, we will find out.

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