Logical Investment Outlook - May 2016

Our strategies continue to do well and all are positive for the year, most of them outperforming their respective benchmarks. Top performers are:

SPY, the S&P500, ETF, has returned 1.73%, year-to-date.

Market comment:

This past month we have seen a rising bullish sentiment develop towards emerging markets and commodities. This is expected as the industry is looking at year-to-date returns of 56% for Peru, 47% for Brazil and above 20% for South Africa, Russia and Turkey. On the commodity side, the silver ETF (SLV) has returned 28% so far, GLD 20% while less known Tin and Platinum ETFs are doing even better. 

If history is any guide, we’re standing at the edge of 40%–96% returns over the next two years.

Meb Faber, April 21st, post on mebfaber.com

According to Mr. Faber's research when a major asset class has more than three losing consecutive years, that asset class shows an exceptional recovery during the following two years.  He argues that if history is any guide one can expect above average returns from emerging markets and commodities. This is easier said than done as one cannot predict when to enter the trade. Still, it is a positive outlook that has so far played out.

One asset class that enjoys less attention but had a superb risk adjusted performance is foreign bonds. WIP, inflation-linked bonds outside the United States , returned 9% so far while PCY, dollar denominated emerging market debt, returned almost 7%. 

Our strategies have been investing in foreign bonds (PCY) and Gold (GLD) since February while Peru (EPU: +20.3% in April) was chosen by our World Top 4 strategy last month (see our April Newsletter mentioning this particular choice as a sign of emerging market recovery).

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