Dear clients, friends and family:
Following is the 2016 second quarter performance for CMG’s Tactical Investment Strategies along with our thoughts on each strategy over the past quarter. Market index performance is presented at the bottom of the chart.
Within the total portfolio construction process, we believe it is important to include a number of non-correlating risk diversifiers (equity, fixed income and tactical exposure), that performance evaluation should be considered over a three to five year period vs. months and quarters, and that one should compare equity performance against an equity benchmark, bond against a bond benchmark and tactical against a tactical benchmark. Asset classes are non-correlating for a reason and should be viewed from that perspective. Of course, past performance does not predict or guarantee future returns.
* Please note all strategy returns are reported net of a 2.50% management fee.
CMG Tactical Fixed Income Strategies
The CMG Managed High Yield Bond Program (“CMG HY”) returned 0.93% for the second quarter, net of fees. The strategy began the quarter in a defensive position and traded into a long high yield position in early April. The strategy was long high yields for the remainder of April into early May. The strategy traded out and back into high yields in mid-May and held that long position into June. In mid-June, the strategy was whipsawed, trading out, back in and out again at the end of June (due to volatility from the Brexit vote). The strategy finished the quarter in a defensive position. High yields have benefited from the stabilization in the energy market and the Fed’s backtrack on tightening. Energy was the wild card in the return forecast for this year and it appears that oil prices may have put in a bottom for the year. While the trend in high yields has been higher, it has not been a smooth path. Pockets of short-term volatility have triggered our model to trade more frequently, causing the Fund to be whipsawed on several trades this year.
CMG Tactical Equity Strategies
The CMG Opportunistic All Asset Strategy (“CMG Opportunistic”), our broadly diversified mutual fund and ETF allocation strategy, returned +1.97% for the second quarter, net of fees. The Jefferson National Tax-Deferred Variable Annuity portfolio returned 0.93% for the second quarter, net of fees. The strategy began the quarter in a moderate to aggressive risk position with a small allocation to fixed income and the majority of the portfolio in equities and commodities, specifically precious metals. In April, the strategy generated positive performance from allocations to international stocks, developed and emerging markets, while exposure to real estate and utilities detracted from performance. Emerging market bonds and precious metals also contributed to performance. In May, the strategy reduced risk exposure by moving out of information technology and emerging markets into medical devices and bonds. The strategy finished the month in a moderate risk position and continued to reduce risk in June. The strategy increased portfolio allocations to fixed income, rotating out of REITS and gold into US Treasuries and intermediate corporate bonds. Additionally, equity exposure rotated out of international stocks and emerging markets into utilities and telecom. The strategy finished the quarter with a moderate risk position balanced between fixed income and equities. We are pleased with the performance of the portfolio through the first half of the year. It has been a challenging period for equity markets in particular and the strategy has been effective in finding relative strength opportunities in such a range bound market. The strategy held the following allocations (individual portfolio allocations may vary) to fixed income, equities, commodities and cash at the end of April, May and June:
The Scotia Partners Dynamic Momentum Program (“Scotia Dynamic”) returned +7.22% for the second quarter, net of fees. Scotia Dynamic generated strong performance during the quarter while maintaining a lower than average cash balance. In April, the strategy was overweight precious metals, energy, electronics, and biotechnology. Allocations to precious metals and biotech contributed positively to performance. May was a challenging month as several sectors were volatile. Small caps in particular detracted from performance early in the month and contributed strongly to positive performance in the second half of the month. Additionally, the strategy was overweight precious metals, biotech and healthcare, each of which contributed to performance. The strategy had a strong June, with contributions from a wide range of sectors. Biotech, healthcare, electronics, energy and precious metals drove positive performance during the month, continuing their trend from the previous month.
The CMG Tactical Rotation Strategy (“Tactical Rotation”) returned +5.25% for the second quarter, net of fees. Tactical Rotation began the quarter positioned 50% to bonds (BND) and 50% to REITs (VNQ). Bonds posted a slightly positive return for the month while REITs detracted from performance. In May, the strategy held its position in REITs (VNQ) and rotated the allocation to bonds into commodities (PDBC). REITS were the best performing asset class in May and commodities also contributed to strong performance during the month. The strategy held the same two positions, REITs (VNQ) and commodities (PDBC) in June. REITs were again the top performing asset class and commodities also contributed significantly as the strategy posted a strong quarter. Importantly, the strategy avoided the worst performing asset class during the quarter, international equities.
Market Commentary and Outlook
Global markets rebounded from a volatile first quarter and were modestly higher during the second quarter. Higher beta stocks and higher yielding credits outperformed as the likelihood of further Fed tightening faded. While growth, both domestically and globally, is tepid, the likelihood of a recession went down during the quarter. However, the surprising Brexit vote by the UK to leave the EU could potentially derail growth over the next twelve months. Although a recession does not seem likely in the US, the risk to growth in Europe has increased as a result of the Brexit vote. The negotiation between the UK and the EU will bear close watching as its impact on trade, the movement of people and London’s financial services hub could be dramatic. Additionally, other countries within the EU, such as Italy, Spain and Greece will be monitoring the situation closely to assess whether they might be better off plotting a course outside the EU. Non-financial matters, namely several horrid terrorist attacks and a failed coup in Turkey, will further complicate negotiations with the UK and make resolving the Syrian immigrant crisis that much more difficult. Moderate political parties in France and Germany will be challenged by both right and left as they seek to make a case for the EU to voters in the face of economic malaise and terrorism. As voters have found it difficult in recent years to see the benefits of the EU in their immediate lives, the risk to the cohesion of the EU has never been greater.
The response to recent events by central banks has been to ease (or in the case of the US to not tighten) monetary policy. With the US in full-blown election season after the party conventions, investors can expect absolutely nothing from fiscal policy and central banks will continue to carry the weight. Although US equity markets have returned to all-time highs, there has not been much celebration amongst investors as risk has increased significantly since the last time we set new highs. As a result, equity markets will likely be range bound unless some positive catalyst (i.e. tax reform, infrastructure spending, a trade deal) jump starts them higher. Consumer spending, in particular, looks weak as auto sales are below forecast and the benefits of lower oil and commodity prices lessen. Last quarter we highlighted the views of Mohammed El-Erian on the concept of a T-junction to describe the global economy. While there are still two choices to take, one to a more coordinated and higher growth world and one towards several years of stagnation (or something worse), it is becoming more difficult so see a positive outcome in the near future given the events of the past quarter.
With kind regards,
IMPORTANT DISCLOSURE INFORMATION
Investing involves risk. Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc. (or any of its related entities, together “CMG”) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
Certain portions of the content may contain a discussion of, and/or provide access to, opinions and/or recommendations of CMG (and those of other investment and non-investment professionals) as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions. Derivatives and options strategies are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from CMG or the professional advisors of your choosing. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. CMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.
This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods.
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Performance Disclosure: Performance results from inception to the present are net of the current advisor fee for the program, 2.50%, paid quarterly in arrears. Performance is not net of custodial fees. The performance results shown include the reinvestment of dividends and other earnings.
Hypothetical Presentations: To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including: (1) the model results do not reflect the results of actual trading using client assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight; (2) back-tested performance may not reflect the impact that any material market or economic factors might have had on the adviser’s use of the model if the model had been used during the period to actually mange client assets; and, (3) CMG’s clients may have experienced investment results during the corresponding time periods that were materially different from those portrayed in the model. Please Also Note: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. (i.e. S&P 500 Total Return or Dow Jones Wilshire U.S. 5000 Total Market Index) is also disclosed. For example, the S&P 500 Composite Total Return Index (the “S&P”) is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor’s chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical performance results of the S&P (and those of or all indices) and the model results do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. For example, the deduction combined annual advisory and transaction fees of 1.00% over a 10 year period would decrease a 10% gross return to an 8.9% net return. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet, his/her investment objective(s). A corresponding description of the other comparative indices, are available from CMG upon request. It should not be assumed that any CMG holdings will correspond directly to any such comparative index. The model and indices performance results do not reflect the impact of taxes. CMG portfolios may be more or less volatile than the reflective indices and/or models.
CMG Global Equity FundTM, CMG Tactical Bond FundTM, CMG Global Macro Strategy FundTM and the CMG Long/Short FundTM: Mutual Funds involve risk including possible loss of principal. An investor should consider the Fund’s investment objective, risks, charges, and expenses carefully before investing. This and other information about the CMG Global Equity FundTM, CMG Global Macro Strategy FundTM, CMG Tactical Bond FundTM and the CMG Long/Short FundTM is contained in each Fund’s prospectus, which can be obtained by calling 1-866-CMG-9456 (1-866-264-9456). Please read the prospectus carefully before investing. The CMG Global Equity FundTM, CMG Global Macro Strategy FundTM, CMG Tactical Bond FundTM and the CMG Long/Short FundTM are distributed by Northern Lights Distributors, LLC, Member FINRA.
In the event that there has been a change in an individual’s investment objective or financial situation, he/she is encouraged to consult with his/her investment professionals.
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