MLM Symmetry™ - Quarterly Commentary
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MLM Symmetry 2017 4th Quarter Commentary

The MLM Symmetry Fund rose 7.4% (gross) during the quarter, taking the compound annual rate of return since inception in September 2014 to 7.2%. This compares to the MSCI World annualized return of 8.4% and the Barclays US Aggregate Bond Index annualized return of 2.4%. Over the course of the year, Symmetry returned 8.4%.

Both the Investment Risk and Price Risk sides of the Symmetry portfolio did well over the final quarter of 2017. We gain exposure to global economic growth through participation in all slices of the corporate capital structure, from equity all the way up to senior loans, and investments in emerging market sovereign debt and equity. Within equity, we buy reasonably concentrated portfolios of value names, an approach that over time outperforms passive benchmarks. 2017 was a good year for value, and our approach to it in particular. Each region generated about 10% in excess of the benchmarks. Broadly speaking, retailers and refiners in the US and industrial type names elsewhere did well and were cheap, many remain relatively so. The upswing in global activity coupled with the passage of major tax reform legislation benefitted these types of businesses. While in any one quarter or year the names themselves matter, over time it is less about the individual holdings and much more about buying the value profile in a robust way, holding and rebalancing as you go. The expanded credit portfolio we implemented in September performed as we'd expect in a tightening of credit spreads, contributing in a slow and steady fashion. Almost all components of the Price Risk portfolio performed in the last quarter also, providing risk capital to facilitate hedge transactions in commodity markets and relative value commodity exposures the largest contributors. Systematic interest rate exposures are much reduced given the razor thin term premia in major interest rate curves, we lost a few basis points as global interest rate expectations shifted upwards as the better growth environment and tax reform package worked their way through.

Broken record territory. For much of the last year we have written on how the pickings are slim out there. Risk premia were tight, and they remain so. So is the economy - as we write, initial jobless claims hit the lowest level in its 40 year history - and it's not a population adjusted series. Although the Fed continues to raise rates, conditions continue to ease. Our view is that the Fed policy rate isn't tightening actual conditions as risk appetite and activity is increasing at a faster rate. A gift of deficit funded higher corporate earnings and take home pay will do that. The hikes so far are, at best, just keeping the policy stance constant rather than gradually removing accommodation. The tax reform bill has the potential to be a watershed event, kick starting investment and capital projects; the deregulatory impulse is also additive. If we see a pivot to infrastructure spending over the coming year, we may see what happens when you get large scale supply side and demand side stimulus at the same time. The market idiom that if the US sneezes the rest of the world catches a cold is also true in reverse. So, what to do. There isn't much that looks obviously cheap - with the possible exception of value equity, handy for us. But staying invested is important. Rebalancing is important. Portfolio construction is important. Keeping exposure to things that will likely help in a different environment than the last five years is important. Our approach is robust enough in its construction to travel the road ahead.

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