Balanced Fund Manager’s Report Q1 2017


With a traditional 60/40 split between Equity and Fixed income as a long-term target, The LOM Balanced Fund seeks to provide superior returns with lower risk relative to the benchmark portfolio. The Fund invests in a globally diversified portfolio of individual securities, Exchange-Traded Funds (ETF’s) and other third-party offshore funds, all managed on a “top down” strategic basis.

During the first quarter of 2017, the Fund outpaced its peer performance by 1.27%. Measured using Bloomberg’s active index for offshore, open-end balanced funds; the peer index closest aligns our fund with its competitors in both Bermuda and other tax-advantaged jurisdictions beyond.

From the perspective of its equity holdings, despite a slight pullback in late March, our overweight to the U.S. markets has remained an advantageous one. This is largely because, over the past few years, we have been proponents of a U.S.-led global equity market recovery. We now, however, are looking more globally.

Although Europe continues to struggle with a shift towards populism, highlighted by last year’s surprise Brexit vote, we have begun to see the green shoots of an economic recovery in the region as evidenced by recent economic reports including robust ISM survey numbers and a steady decline in the unemployment rate. While we may have been a bit early in increasing our European equity exposure last year, the tactical shift has started to pay off in Q1 as those markets have begun to outperform.

Looking at the fixed-income space, during the year’s first quarter, global corporates (high yield in particular) outperformed government bonds. Global high yield credit outperformed government bonds by 2.4% on an absolute return of 2.8%. Global investment grade corporate bonds rose 1.2% outpacing government bonds by 0.7%.

Going forward into Q2, It is likely that the Fed will move to cap its interest rate hikes to three, while continuing to support a moderate reduction in the size of its balance sheet later this year. With the world economy in the early stages of a global reflation cycle, we look to rotate our exposure to asset classes most likely to benefit from rising inflation and growth. This should translate into a reduced exposure to long-dated government debt with a selective increase in our holdings of cyclical and emerging market equities.

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The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.