August represents the start of our fifth year in business. I’m proud that the Forge First team has been able to deliver industry leading risk-adjusted returns since inception. To our unitholders - thank you for your trust and support over the last four years. Moving forward, our value proposition continues to be that of helping investors to protect assets, diversify their portfolios and generate a competitive rate of return...
There were seven record highs for the S&P 500 during July, a month that saw US Treasury 10-year yields close at 1.46% (vs. 2.25% at December 31, 2015 and 1.47% a month ago), the VIX at 11.97 (vs. its month earlier level of 26.72) and, since July 8th, cyclical assets outperforming defensives. Markets don’t seem to have a care in the world; each day investors succumb to the allure of TINA (“there is no alternative” to stocks). Not even oil’s threat to break its 200 day moving average (at $41.20) to the downside has interrupted the music. During the month, all North American equity indices generated solid returns, with former “FANG” stocks enabling NASDAQ to post the best returns. Both of our funds generated profits during July and marked their four year track record...
Entering 2016, I’d been of the view the coming year would present increasing turbulence that would make it more challenging to balance the imperative of preserving capital with meeting the natural expectations of investors to make money. That has certainly turned out to be the case.
Specifically, each of the two funds entered 2016 with a more conservative positioning driven by:
1. Various macro uncertainties
2. The generous valuation afforded equity markets
3. Our belief that flat was likely the “new up” for equity indices this year
Post Brexit events and ensuing volatility have further solidified my view that the funds continue to maintain a more conservative positioning. However, we are cognizant that the Brexit decision requires us to examine our “road map” and make appropriate changes as it relates to sectors and securities. I provide more details on our 2H 2016 road map later in the commentary...
Wouldn’t you like to know what the original text for Yellen’s June 6th “major policy” speech was going to report? Given all the “nudge, nudge, wink, winks” Fed talkers had provided during the past few weeks, there’s little question the “data dependent” FOMC was planning to hike rates in either June or (more likely) July. However, post that US jobs shocker last Friday, June 3rd, there’s now no question her text will be rewritten and most prognosticators will be forced to ponder how much their universe may need to change. I had been in the camp that the US economy was going to remain okay, but given the S&P 500’s stretched valuation of 18X reported EPS (P:E ratio) amidst anemic organic top line growth (1.6% CAGR this cycle vs. 6.8% historically) and falling profit margins, the SPX would remain inside the 1850-2125 trading range it’s been in since November 2014. My view remains that it will generally stay within this range unless oil is markedly lower or higher than $48.50 in 6-8 months...