Year-to-date while oil markets and the FOMC have dominated financial-related headlines, two other stories that potentially expose the outlook of the global economy and financial markets to significant risk, slowing Chinese growth and declining forex reserves, rose to the top of the pecking order and hurt investors during August. Neither of these stories were new, but markets had shrugged off their potential implications until they couldn’t, and the catalyst for that revision was the Clouseau-esque nature by which the Chinese tried to boost their markets, exacerbated by the regulation-driven illiquidity of post global financial crisis trading. The results were swift and startling.
Markets remained range bound in July but not without some fireworks (leveraged resource stocks, VIX and 30-year US Treasuries, to name a few). While Greece’s problem was merely kicked further down the road, Canada’s struggling economy was just plain kicked while it was falling to the mat. In US markets, a handful of large cap tech stocks saved the month in the States, while here in Canada the TSX small cap index was down 6.48% for the month, during the last week of July, an unsustainable rally in bank (+5%) and energy (+6%) stocks, enabled Canada’s TSX total return to be down small for the month. As for Forge First, we exited July 2015 celebrating our three-year track record in each fund...
Markets have acted like a fiercely contested sporting match on a year-to-date basis with the lead continuously changing hands during the first half and a tie at halftime. In sports it’s often said that avoiding mistakes and having a strong defence is the key to winning closely contested games. With excess supply continuing to constrain global growth and the FOMC poised to begin its hiking cycle, that analogy may be the winning formula for stocks during the second half of 2015.
While major North American equity indices and bond markets were on either side of flat at the mid-point of 2015, our funds at Forge First have seen strong absolute and risk-adjusted net returns. The Forge First Long Short LP (“FFLSLP”) earned a net return of 17.78% for the Class F Lead Series during the first half of 2015 while the Forge First Multi Strategy LP (“FFMSLP”) climbed 13.36% net of fees for the Class F Lead Series. More on the funds in a moment, but first let’s recap the first half...
As the saying goes, there’s always a “calm before the storm”, and May 2015 proved to be a very quiet month in markets. Exiting April, the “reflationists” hyped their story that the relative improvement of the rest of the world versus the USA meant that it was time to sell the American buck and get long resource stocks. In fact, growth slowed further in China, was decidedly mixed in Japan, and remains far from great in Europe. In contrast, post the release of minutes from the Fed’s April meeting, the pace of bear flattening of the US rate curve picked up, pushing the US dollar markedly higher and “reflationist” trades into the red. Both of the Forge First funds had a solid month, making money on each of the long and short sides, and outperforming the TSX which lost -1.22% for the month...