At some point, near term macro events overwhelm an otherwise longer-term constructive environment.
Through the fall, while developing and international markets underperformed, developed and specifically North American markets advanced in a broad based rally.
Even through the recent news flow in the Gulf, leading stocks simply consolidated a short term overbought condition. However, the events in Japan over the past few days have washed through an otherwise technically sound equity markets and have now pushed us into correction in many of the leading stocks. Our job is to assess the current market environment and act based on our disciplines when conditions change.
In the end, flow of funds drives markets and stock prices. Short and long term uncertainty has paused equity buyers in their tracks. As a result despite only moderate selling, it has had an out sized impact on prices.
Coming into the recent events, based on our Long Term Risk Models, the various Barometer Equity mandates have been focused almost entirely in North American companies, and more specifically Canada based on the strong currency setup.
Given the near term negative changes in Barometer's LT Risk Models for North America, we reduced higher beta positions and have hedged a significant portion of our continuing common equity exposure. This will be a work in progress. While we recognize that many of the factors are short term in nature, we are not paid to speculate, and managing risk is a big part of our mandate.
We always get impacted in the initial stages of a decline; there comes a point where defensive measures protect against a prolonged decline. The defense is on the field.
In the High Income Mandates, where yield and cash flow are the name of the game, our positions have held up well and continue to meet our tests.
Our monitoring of credit default swaps and other credit market indicators shows very little damage and a VERY different picture than the 2008-2009 setups. Given that both the top down work and bottom up analysis remains positive, we are making very few changes in the High Income holdings.
In all of our mandates, exposures continue to focus on energy (specifically oil and thermal coal), technology (services and communications), and capital equipment. We are also focused on infrastructure and inflation protected yield positions across mandates.
Please click through the following link to view a 10 minute BNN interview from this morning (March15th) discussion of our current views and portfolio strategies
http://bit.ly/fcCmtx
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