Anchor Pacific’s February 2020 investment scorecard. See asset class performance, 3-year asset class risk and return, macro summary (key index levels and rates), and yield curves.
To download the complete Monthly Investment Scorecard, please click on the link below:
Commentary (Related to Market Volatility)
Global financial markets began the month of February in strong fashion, shrugging off the first news of COVID-19 and focusing on the positive, namely anticipated market-friendly developments on the trade front, resilient corporate earnings, and accommodative global central bank conditions. As of the middle of February, most equity markets were tracking 5% gains until the fallout began around February 20, as news of the virus spreading well beyond Asia resulting in heightened escalation, and near-term capitulation on month-end Friday with markets in a sea of red. When all was said and done, US large-cap equities had lost nearly 8% on the month, losing 11.2% alone last week, which was only the 4th time in the last 70 years that the US stock markets had seen a weekly decline in excess of 10%. The VIX spiked and closed at 40 from 19 the prior month (it was 13 three months ago). US Treasuries in the ultimate flight-to-quality rallied significantly with the 30-year barreling through the all-time low of yield 1.90% and closing at 1.65%, logging a total return of +6.6%. The yield curve steepened by 13bp to 79bp and the market is now pricing in 50bp of rate cuts. High yield bond spreads widened by 100 basis points on the month, leading to total returns of -1.5%.
The markets closed Friday extremely oversold and were ripe for a short-term bounce which occurred today. Stability has returned for a day but we’ll see what’s in store for tomorrow and the days beyond. COVID-19 has already impacted the Chinese and global economies, which was reflected in an even larger decline in China’s Purchasing Managers Index than was expected. At this point, the virus’ impact on global economic activity and whether this will lead to a global pandemic is unknown. In these unsettling times, it is our job to provide our clients with some context and comfort.
Since the Global Financial Crisis, there have been close to 30 negative events leading to short-term sell the market fears yet US equities have increased by 400%. While there may be more short and intermediate-term pain, equity returns will likely be positive (although probably not awe-inspiring) projecting out over most long-term horizons
Trailing 12-month returns for most asset classes remain very strong with balanced portfolios up to 6.5 – 8.5%
Anchor Pacific had no idea this virus was coming – however, our highly disciplined and robust portfolio construction process and risk management framework is designed such that we are always prepared for potential disruptions. Focusing on risk management and downside protection while generally undervalued in fast-moving “risk-on” markets and best appreciated over months and quarters of volatile markets, has rewarded our clients in this recent bout of market turbulence. Our client portfolios have experienced a fraction of the US equity market declines and volatility, with some of our balanced mandates close to flat YTD (US equities are down 8%). We are extremely pleased with how client capital has been protected and our portfolios have performed as we would have expected given this volatility. Furthermore, several of our actively managed alternative strategies exhibited positive returns in the month of February, led by our tactical risk offset portfolio, which returned +2.2% (+6.4% YTD).
Summary of Returns
Positive returns for 5 of 20 asset classes
US L-T Treasury Bonds +6.63% | US Total Bond Market +1.58% | US IG Credit 1.09%
US Small Cap Equities -8.85% | US Large Cap Equities -7.92% | Commodities -7.80%
Equities -5.83% | Bonds +0.53% | IG Credit -0.35% | CAD -1.41%
Past 3 Months
Positive returns for 8 of 20 asset classes
US L-T Treasury Bonds +11.16% | Gold +7.63% | US IQ Credit +4.11%
Commodities -12.28% | US Small Cap Equities -9.21% | International Developed Equities (C$H) -7.94%
Equities -3.78% | Bonds +2.09% | IG Credit +1.78% | CAD -0.94%
Past 12 Months
Positive returns for 16 of 20 asset classes
US L-T Treasury Bonds +32.37% | Gold +19.67% | US IG Credit 17.83%
Commodities -15.01% | US Small Cap Equities -5.41% | Canadian Dollar -1.23%
Equities +5.02% | Bonds +8.71% | IG Credit +8.06% | CAD -1.23%
Macro Summary (Key Index Levels and Rates)
10 year Government 1.13% (38 bp lower)
30 year Government 1.65% (34 bp lower)
Yield Curve (2-30) 79 bp (steeper by 13 bp)
High Yield spread 504 bp (wider by 101 bp)
Volatility (VIX): 40.11 (112.90% M-O-M, 217.83% from 3 months ago)
Oil: $45.25 (-12.24% M-O-M, -17.98% from 3 months ago)
Gold: $1626.35 (2.88% M-O-M, 11.67% from 3 months ago)
USD / Euro: €0.91 (Euro weaker by 0.60% M-O-M, stronger by 0.10% from 3 months ago)
USD / Yen: ¥108.08 (Yen stronger by 0.29% M-O-M, stronger by 1.31% from 3 months ago)
Download the complete Monthly Investment Scorecard here:
Anchor Pacific Investment Management Corp. (“Anchor Pacific”) is a Vancouver, BC-based portfolio management firm, which leverages process, technology, and infrastructure to democratize the process of managing endowment and pension style investment portfolios to deliver innovative, high-touch, and transparent investment programs across the full spectrum of asset owners and investment consumers.