Dimacos Diversified Program, Market Review for February 2017

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February was a good month for Dimacos Diversified. We generated +4.49% vs +2.27% by the SG CTA Index and +3.93% by the S&P 500. All our sectors performed positively, equities, indices, interest rates, currencies and commodities with most profits coming from long indices and short currency positions. Some losses in a few interest rate and commodity positions were nowhere near making a meaningful disruption to the results.

The sentiment that developed after Donald Trump’s election as US President returned in February with expectations for higher interest rates, increased spending and deregulation dominating investor’s minds. The markets may be excused for having such expectations when they hear the President of the United States talk about a “phenomenal” tax plan, one trillion infrastructure spending, Janet Yellen reinforcing an increase of interest rates soon, irrespective of fiscal policy and inflation figures coming out higher than expected.

For now all this is good tailwind for most of our holdings. No firm details have come out yet on either the tax plan or infrastructure spending and as time progresses, expectations will converge to what actually happens. If Trump and the FOMC make good on the current expectations, we would anticipate the existing sentiment to persist and possibly become stronger. In the alternative, markets would most probably reverse course and as always our strategy will gradually adjust its profile accordingly.

On this side of the Atlantic, the EU PMI figures came out to the highest level in almost six years and manufacturing rose higher than expected. The UK House of Commons voted in favour of giving Theresa May the power to trigger Article 50 of the Lisbon Treaty to exit the EU, albeit the House of Lords subsequently voted in favour of an amendment to the bill giving the right to EU Nationals to remain in the EU after Brexit.

Something may be brewing for Greece as the IMF declared that the country will not be able to meet budget surplus targets set by Europe and reiterated its view that Greece’s debt levels are unsustainable. All this may be ammunition for Greece to renegotiate its debt, albeit Europe made it clear repeatedly that this is off the table.

Whatever happens in the US, Europe or Asia, markets eventually always adjust to the facts. Before that, investors trade the expectations. Standing still is not an option, i.e. there should always be something to trade, even when in fact there isn’t. Most investors think that above-average performance equals non-stop action and when there are no facts available, this insatiable appetite for trading is fed with the rumours, the “experts” views, sentiment or some extremely complicated algorithms that even Nobel Laureates get wrong!

Our trading behaviour is different. First, we only work with the facts, historic ones that have actually materialised. For example, past financial statements, historic fundamentals, and historic traded prices are the closest you can get to the definition of what has actually happened. In our approach, rumours, experts and sentiment are discounted to zero. Secondly we only trade long-term as we feel the short-term is filled with randomness and if you count transaction costs it’s a loser’s game.

It’s like having two roulette rooms and in the first one, the roulette spins once a day but gives you slightly more than a third chance to triple your bet whilst in the second room it spins once a minute but gives you slightly less than a third chance for the same outcome. Sensible traders would choose the first room identifying that over the long-term the odds are in their favour. Gamblers (and impatient investors, sadly) would flock to the second room.

*IMPORTANT: Please read our Disclosure Statement and Disclaimer.

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