Like October, November offered plenty of geopolitical intrigue with ongoing dialogue on China trade, impeachment inquiries, and comforting Fed-speak, but the combination of all these countervailing forces prompted strong equity markets. The S&P 500 kept up its torrid pace setting new all-time highs, while other equities tried to keep up. In the fixed income space, core bonds were mostly flat, while bonds with some credit risk posted modest positive returns.
The S&P 500, with its huge weighting of 22% to just 10 stocks, returned +3.64% for the month. Other core equity plays like small cap (SCHA) and mid cap (SCHM) also performed well with returns of 3.92% and 3.88%, respectively. Action in the “factor” space of momentum and low vol spent another month with modest lagging returns of 3.29% and 1.39%, respectively. An “AI-managed” ETF (AIEQ) insulated from behavioral biases, pulled out another winning month with a 4.96% return for the month and YTD S&P 500-beating returns of 28.46% (versus 27.52% for the S&P). High div plays mostly lagged a bit, but rising dividend yields portend higher returns in the future if market rates stay low or go lower; same goes for REITs.
The bond market, taking a breather from its scorching pace through September, stayed calm with some pockets of positive return. Core bonds (SCHZ) were mildly negative with a -0.09% returns while bonds with credit risk like investment grade corporates (LQD), high yield (HYG), and bank loans (BKLN) gave positive returns of 0.47%, 0.57% and 0.61% respectively.
Tactical players in the asset allocation space struggled during the month. The Morningstar Tactical Allocation Category produced an average return of 1.41% for the month, while one notable asset allocator, the Cambria Global Momentum ETF (GMOM) earned negative returns for the month of -0.46%. Just another indication of how “smart” money can be wrong!
One month is never enough time to gauge the effectiveness of a long-term strategic investment strategy. These monthly checkpoints let us gauge the individual winners and losers. We don’t expect each investment to outperform each and every month; but, instead are looking for a positive gap for the whole portfolio of investments over a full market cycle.