MLM Symmetry™ - Quarterly Commentary
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MLM Symmetry 2016 4th Quarter Commentary

The MLM Symmetry Fund fell 2.2% (gross) during the fourth quarter of 2016, taking the compound annual rate of return since inception in September 2014 to 6.7% (gross). This compares to the MSCI World annualized return of 2.0% and the Barclays Global Aggregate Bond Index annualized return of -2.1%. The fund lost 2.2% (gross) in 2016.

The Investment Risk side of the portfolio made gains as equity and credit markets rallied after the US election, with value equity in particular performing strongly. Gains resulted from prospects of a large scale infrastructure spending bill from the incoming administration, as well as more business friendly policies in the form of lower tax rates and cuts to regulation. Industrial, material and financial stocks had relatively lower valuations, at which point it didn't take a large change in outlook to generate an outsized return. Credit markets tightened alongside, benefitting the portfolio. The price risk side sustained losses in commodity markets, as choppy markets were not conducive.

We wrote last quarter that those were not the most interesting times to write about, and that there are decades when nothing happens and quarters where decades happen. The last quarter may turn out to be ones of those where a decade happened - a large scale change shift in the political and economic landscape, with reverberations that will be felt for years to come. The market moves we've seen since the US election have been fascinating to watch - similar to the Brexit vote, the result was unexpected, as was the market reaction that followed. The consensus was a Clinton victory, with Trump being a tail event for markets - stocks would fall and confidence would plummet. Turns out not so much. The pro-growth policies that the administration have outlined so far should benefit the Investment Risk side going forward, as it seeks to participate in broad global economic growth. We envisage that being a positive for the world as a whole. In time the Price Risk side should come to benefit as it adapts to the changes that unfold.

As to how we see things unfolding - hard to know. There is an enormous amount of noise on all sides. We are decently optimistic. There are paths that lead to good outcomes. Cuts to corporate and personal income tax rates offer an immediate shot of stimulus to the real economy by encouraging business investment and personal spending. Central bankers have been calling for increased fiscal policy for years and may be about to get it in spades (or shovel ready projects). The left now say it's less necessary, which may be true - that doesn't mean it isn't going to happen. Repairing roads, bridges, airports, and hospitals with deficit spending may mechanically increase GDP for a couple of years - a bigger question would be whether the business investment and capital deepening increases productivity, and whether Trump sets off similar movements in Europe. We have a lot of sympathy for the perspective of Wilbur Ross, the incoming Commerce Secretary, that large scale multi-national trade deals are sub optimal for the US as they are infinitely more complex and lead to unintended concessions to please all parties. Bilaterally works better. You'd have to be blind not to see that there are paths that lead to messier outcomes though - trade protectionism and tariffs amongst the wildcards. We see much of the rhetoric around this stuff as opening salvos in negotiations from a brash New York real estate developer - we'll see.

We have been investing in the "Symmetry" way over the past 20 years inside our global macro strategy, and what is most interesting to us is how much has changed over that period. We've seen high growth booms and devastating busts. Governments of the left and the right. High interest rates and zero interest rates. Commodity prices rocketing and plummeting. A strong dollar and a weak dollar. The tides change, but the strategy and the way it interacts with markets is durable.

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