Market and Investment Insights

August 2019


Investors who were expecting renewed exuberance in the markets after the Federal Reserve cut interest rates on July 31st would have been disappointed given the negative monthly return on the S&P 500. The index seemed to oscillate throughout the month before ending on a downswing at -1.81%. The selloff was attributed mostly to the ongoing US-China trade war. Yes, the same “old” story and yes, we’re getting tired of it too.

Trump sought to increase the pressure on Chinese negotiators when he demanded that US companies begin reorganizing their supply chains away from China. If this rhetoric continues, some analysts worry that a global shift towards protectionism and deglobalization will lead to higher goods prices, slower productivity growth and lower economic output. In economics this is referred to as ‘stagflation’, an economic period where an economy has stagnant growth but rising unemployment and inflation.

The US Treasury Department is looking to capitalize on the thirst investors have for “safe assets with a moderate yield” by seeing whether there would be enough demand for 50- or 100-year government bonds. Through the issuance of these bonds, the government would be able to lock in at these low interest rate levels for much longer than the current longest bond of 30 years. Investors have demonstrated an appetite for ultra-long dated sovereign bonds given the success of Austria’s recent century bond offering. In the case of Austria’s offering, the yield-to-maturity (how much an investor can expect to earn by holding the bond to maturity) was just over 1%*. Given inflation and taxes are clearly more than 1%, finding safe ways to generate returns is getting harder.

Potential Contributors:

  • Our allocation to gold proved to work as designed as the commodity price shot up, acting as a hedge against a global equity selloff. Up 7% in August and 15% in the last three months.
  • Our underweighting to broad US equity helped preserve the portfolio’s year-to-date returns. Top performer was ZGI, the Global Infrastructure ETF, up 4.2%. Our best performing stock in Canada was BCE Inc. which benefitted from a flight to defensive sectors.

Potential Detractors:

  • PIMCO Monthly Income had an outlier month of negative returns. The fund was impacted by their exposure to Argentine bonds and short duration. We discussed this with the team at PIMCO who advised they expect a rebound in these asset prices.
  • iShares Base Metals (XBN) has been cut from our Growth Model after continuing to trend downward in August. iShares Global Agriculture (COW) also lost 2.8% due to trade/tariff concerns.


All performance numbers sourced from Morningstar Direct.