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 

Alternatives

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.

Disclaimer

This commentary is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Nothing in this commentary constitutes an offer to sell or a solicitation of an offer to buy any security or service and any securities discussed are presented for illustration purposes only. It should not be assumed that any securities discussed herein were or will prove to be profitable, or that investment recommendations made by Toroso Investments, LLC will be profitable or will equal the investment performance of any securities discussed. Furthermore, investments or strategies discussed may not be suitable for all investors and nothing herein should be considered a recommendation to purchase or sell any particular security.

Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. While Toroso Investments, LLC has gathered the information presented from sources that it believes to be reliable, Toroso cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed in this commentary are Toroso’s current opinions and do not reflect the opinions of any affiliates. Furthermore, all opinions are current only as of the time made and are subject to change without notice. Toroso does not have any obligation to provide revised opinions in the event of changed circumstances. All investment strategies and investments involve risk of loss and nothing within this commentary should be construed as a guarantee of any specific outcome or profit. Securities discussed in this commentary and the accompanying charts, if any, were selected for presentation because they serve as relevant examples of the respective points being made throughout the commentary. Some, but not all, of the securities presented are currently or were previously held in advisory client accounts of Toroso and the securities presented do not represent all of the securities previously or currently purchased, sold or recommended to Toroso’s advisory clients. Upon request, Toroso will furnish a list of all recommendations made by Toroso within the immediately preceding period of one year.

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