Looking towards other parts of the fixed income markets, credit spreads (the difference between two bonds of similar maturity but different credit quality) are near historical low levels, meaning the added compensation for taking additional risk in fixed income is near an all-time low.  This means that the protection aspect of non AAA-rated debt may not be there next time there is a market pullback.  This could leave many fixed income and equity investments to be highly correlated if volatility increased 


After years of negative returns, gold finally began to move with consecutive years of positive returns, returning 8.69% in 2016 and 11.41% in 2017.  Cryptocurrencies went from the blogosphere world to a regularly discussed subject on CNBC, Bloomberg, and others as the overall value soared from just over $16 billion dollars to over half a trillion dollars in 2017.  Toroso capitalized on this through the Bitcoin Investment Trust (GBTC) and eventually US Global (GROW), which took ownership in a large cryptocurrency miner in Canada, Hive Blockchain Technologies.

Periodic Table

As of December 31, 2017

Looking forward

While much of this commentary has tilted towards the bearish case, often the most growth in markets can be had right before a market turns.  It’s important to note that the market and the economy are two very different things. There are many risk out there, from a government shut-down, to an inverted yield curve, and a slew of geopolitical risks around the globe.  All in the face of stretched valuations caused by unprecedented quantitative easing that is set to go negative (globally) for the first time since it began. Additionally, the Bank of Canada (BoC) and Bank of England (Boe) have joined the Fed on paths towards higher interest rates.  The European Central Bank (ECB) is set to announce a new president, and its looking like the job will go to a German, not an Italian this time.  A big risk for 2018 could be a global melt-up in German bund yields, which have been thought to have caused long term rates in the US surpassed.  China’s economy has begun to display signs of slowing, as the Chinese government has become less accommodative towards the highly indebted state-owned government sector.

Many of these risks have existed for years, and this is not a call for action to overreact. Timing markets is a fool’s game that almost always ends poorly.  We remain committed to our goals-based approach by building a core wealth preservation strategy and adding income or growth based up one’s personal risk tolerance.

This article was written by Michael Venuto, CIO, and David  Dziekanski, Portfolio Manager, at Toroso Asset Management, a participant in the ETF Strategist Channel.


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