We have now broken the back of 2022 and Q2 is done and under our belt. Globally, we saw a huge contraction within the markets, with 2022 being the 5th worse year for the S&P500, including the Great Depression of 1933, and the worst performing year since 1970! To compound the issues further, we global sentiment index is at an all time low, confidence in the US Treasurers are at an all-time low, going back to 1778, bonds are having the worse year in over a century, inflation is at historic highs, and we saw 1:1 parity against the US Dollar and the Euro. What a time to be alive!!!
By the end of Q2, we were 7% worse off than the markets, that being 28% down vs 21% of the stock market. Most of this turbulence was experienced in June. During that time, our main strategy, the Golden Ratio, had us still in the markets. Surprisingly, during this year, we haven’t seen a shift towards gold, with that also underperforming on for 2022. Due to this, our oscillator has kept us in the market’s year to date.
Due to this, we have now developed a third spoke to the Golden Ratio setup which now allows the fund to take on a cash position, not just the markets or gold. This new position is derived from a quantitatively driven economic outlook overlay, comprising of multiple factors including, interest rates, inflation, unemployment, and sentiment indices. The testing of this has proven to make Golden Ratio more hardened against conditions where we are seeing weakness across all assets, and not just one or the other.
Since our last update at the end of Q2, we have now finalised and launched our oil strategy, which we are calling Slick Witch, as this seasonal oil strategy links in with the Witching Friday’s we see throughout the year, especially the Triple Witching Friday in the futures markets. So far this has performed as our testing has proved, and the macro-view of this strategy is to offer further diversification to the fund overall due to the asset class of oil.
The other two strategies (Mini Golden Ratio, Platinum Winter) are still performing as expected, but as their impact is minimal against the large market swings which are being experienced now, their effectiveness is minimal at this time.
The start of Q3 now has the Golden Ratio in gold, which will reduce our tie to the S&P, but if the markets continue to perform the way they have for the whole of 2022 so far, this will hopefully keep us out of more which may come. Of course, as it is 100% quantitative, if our system tells us to be back in the markets come August, we will honour it, as per our obligations to the funds set-up.
Of course, we do not own a crystal ball, but for us, all signs are pointing to a worse second half to the markets than the first half has shown thus far, and we will continue to monitor everything very closely to ensure we are taking the appropriate action at the appropriate time. It is important to us to remember that in a bear market which we are now in, that we don’t start chasing our tails trying to change the past as quickly as possible. Our strategies work over the long term because we are steadfast in our approach, and although tweaks and evolutions are necessary, revolution is usually the downfall for most funds such as ours. One thing we are currently exploring now is the US Dollar Index to help us better normalise gold price in relation to the strength of the US Dollar. The outcome of this at this time is unknown, but we feel that being able to see the price of gold relative to the strength of the underlying currency it is traded in, could lead to opportunities which we will be able to take advantage of. Watch this space…
More information on the above can be found in our quarterly podcast which is out now for Q2. Come October, we will send out our next update with Q3’s results.
If you have any questions or would like to know more about anything mentioned above, feel free to get in contact with us, and we'll happily have a chat with you about it.
Until next time, stay safe, and swing easy.
For more in-depth analysis, everything is on the website for inspection (www.willowoakadvisory.com/ubique)