Stableford Capital Insights

Stableford Market Commentary: February 2020

Euphoria and Panic

The S&P 500 declined 8.4% during February (Figure 1) to close down 8% year-to-date and remains at similar levels through March 6.[caption id="attachment_2930" align="aligncenter" width="940"]

Figure 1: Stableford Capital Market Commentary February 2020

Figure 1: Stableford Capital Market Commentary February 2020[/caption]

US Treasury Declined in February

The US-Sino trade-détente and global-growth euphoria that began last September peaked during February (Figure 2) and has been replaced with global contagion fears (double entendre).[caption id="attachment_2945" align="aligncenter" width="940"]

Figure 2 Stableford Market Commentary February 2020

Figure 2 Stableford Market Commentary February 2020[/caption]In short, risk markets became too frothy and expensive (a theme you are likely tired of hearing from us) and the Coronavirus provided the spark for the downturn. China led the way and now appears to have the spread under control. Other countries, including the US, are just now coming to grips with what the size of the problem could be. Unfortunately, we—like the Chinese—are late in our response. We have no idea how to size the problem due to a lack of testing, leaving us with an unquantifiable mess.Markets, like nature, abhor a vacuum. This is a key tenet of investing. Rarely are there times when markets are completely unsupported. An unquantifiable problem is one such time: If investors can’t size a problem it is not possible to estimate the economic impact.Until we know the size of the problem and can value it, equities will fall. This has been our key theme over the last 2-3 weeks at Stableford Capital. Once we have a handle on the number of cases and its growth rate, markets will improve.One way we have been offsetting the drop in equities at Stableford is by investing in bonds. As usual, bonds were the first to sniff out the problem (Figure 3). Investors flock to safe havens, such as the 10 Year US Treasury, when other assets are perceived as risky driving up the price of the Treasuries (and yields down). The 10 Year US Treasury began 2019 at 1.9%, fell to 1.2% as of the end of February, and is now at an all-time low 0.76%! Incredible! We’ve been watching bonds closely too, and were early in buying long-duration Treasuries (the longer the duration, the more the price moves up with a drop in yields).[caption id="attachment_2946" align="aligncenter" width="940"]

Figure 3 Stableford Market Commentary February 2020

Figure 3 Stableford Market Commentary February 2020[/caption]

Capital Preservation

Below (Figure 4) are the returns for the Stableford 50 year-to-date through February (similar through March 6). While we’re never happy with negative returns, we are happy when we’re able to preserve clients’ capital. And on a relative basis, that is what occurred. The losses in our strategies are a fraction of the overall equities market and a 60/40 mix of equities and fixed income.[caption id="attachment_2948" align="aligncenter" width="1138"]

Figure 4 Stableford Market Commentary February 2020

Figure 4 Stableford Market Commentary February 2020[/caption]Frequent readers have heard us preaching about high valuations and risk for a while. It’s times like this when being prudent and risk-averse matters. It is likely that once the Coronavirus fears have passed, (see our January piece for a refresher on how markets price risk in times of crisis), there will be a substantial bounce in risk assets. The key though will be how much economic damage has been done and whether that will trigger a recession and another leg down. It is far too early to answer this question. For now, we are focusing on capital preservation.Please feel free to contact us if there are any changes to your financial situation or if there are any adjustments you’d like to make (if we have not already spoken). Of course, we look forward to your calls, answering questions or if you just want to chat—we always enjoy catching up.Are you interested in making portfolio changes or getting a more in-depth analysis? Contact Stableford today by calling 480.493.2300 or simply request a free trial of our Market Blast.COMPLIMENTARY TRIAL OF THE STABLEFORD MARKET BLAST

Disclosures: Stableford Strategy Descriptions

  • Stableford 50 Plus seeks to invest in a diversified portfolio of high-quality securities in sectors with the largest opportunity for appreciation while targeting risk levels below that of the overall market. Inception date 1/1/2015
  • Stableford ETF Plus seeks to invest in a diversified portfolio of high-quality securities, in sectors with the largest opportunity for appreciation while targeting risk levels below that of the overall market. Inception date 2/1/2016
  • Stableford ETF—Conservative seeks to invest in a diversified portfolio of high-quality securities, primarily ETFs, with opportunities for appreciation, balanced with capital preservation. This strategy targets risk levels below that of the overall market. Inception date 1/1/2015

For more information regarding the strategies' returns since inception, please call Nathan Faldmo at 480 939-3410.This market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.