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Despite the slowing US economy and generally anemic growth overseas, global equities markets resumed their upward trend over Q2 2019 as the prospect of a trade war resolution combined with a milder tone from the Federal Reserve calmed investors.
Q1 earnings generally surpassed expectations which fueled an April rally, but as investors awaited Q2 earnings reports sentiment was dominated by geopolitical concerns. Throughout the quarter, global equity markets fluctuated in response to comments from White House officials about the possibility of a trade deal with China with all eyes on the Group of 20 (G-20) summit in Osaka at the end of June.
Risk markets plunged in the month of May when trade negotiations appeared to fall apart, but then rebounded sharply in June after dialogue between the U.S. and China trade indicated at least a temporary détente had been reached.
Well positioned in front of positive market trends, the LOM Equity Growth Fund generated a net total return of 4.12% for the second quarter of 2019. This return exceeded that of its stated benchmark by 0.77% as a combination of strong sector bets and good stock selection boosted both absolute and relative investment performance during the period.
During the second quarter, the best performing sectors were Industrials, Information Technology and Financials while Real Estate, Healthcare and Energy underperformed. The Fund maintained its overweight position in Industrials and Information Technology which helped performance and was approximately market weighted in Financials. The largest detractor from relative performance attribution was from the Communications Services sector.
While the Fund continues to underweight the Energy and Basic Materials sectors, we have been slowly increasing our positions on market weakness. In the commodities market, crude oil prices jumped in June as tensions in the Middle East escalated. US sanctions imposed on Iran, in breach of a prior agreement between the two countries caused the Middle Eastern nation to flex its regional strength. Iranian special forces were implicated in the bombing of Norwegian and Japanese oil carriers travelling through the Strait of Hormuz. A week later, Iran shot down a US spy drone running surveillance in the region and claimed the drone had breached Iranian airspace. The downed drone briefly pushed the countries to the brink of a military conflict before an unexpected de-escalation. Rising political uncertainty and the kink in the global oil supply contributed to crude oil prices rising 9.29% in June. But even though oil prices have been on the rise, oil company stocks continue to lag the market and may represent an opportunity on a selective basis.
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.
