The Dual Momentum Fund – October 2018 Investment Report
The broad and sharp deterioration which commenced early in October saw our strategy’s capital protection elements come fully into play. By month end all of our markets had been closed to new positions and most of our existing positions had been systematically closed out on early confirmations of weakness. As a consequence Fund cash levels rose promptly to 93.2% with only a small number of Japanese and US stocks making up the balance of 6.8%. The Fund return of -7.28% for the month bettered our major investment markets of Japan and the Nasdaq in the US which returned -9.12% and -9.20% respectively. The Fund is now well insulated against any further market deterioration should it occur.
Losses over short time periods are an integral part of systems which capture long term upward price movements, and in this instance we’re particularly pleased with the responsiveness of the strategy to promptly build our cash balances in the face of deteriorating market conditions. These types of events rarely end as promptly as they begin and the portfolio is now well positioned for any uncertainty or further deterioration which might ensue. Until signs of sustainable strength return to our markets on a case by case basis our capital protection mechanisms will guide our actions in the short term. When, and only when, individual markets display sustainable signs of strength will our capital will be redeployed into new up-trending and out-performing positions.
Currency had only a small influence on our October results, with the portfolio-weighted contribution of -0.12% largely due to our increasing Australian dollar cash position.
Our proven strategy of systematically targeting stocks whose individual share price is both increasing and outperforming over medium to long term time frames will continue to be applied. Our active bottom-up investment style will guide portfolio allocations such that they will continue to expand or contract in response to market risk and reward characteristics as they evolve over time.
