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- The SIF achieved a total return of positive 4.02% last year despite the worst fixed income market selloff in 13 years occurring in Q4.
- Fund outperformed its stated benchmark in 2016 by 2.32% net of all fees and expenses.
- SIF exceeded the return on the Bloomberg Offshore Balanced Fund index (aggregate performance of peers) by 2.83% last year.
- The closest local competitor fund, Clarien’s Voyager Preferred Equity Fund, delivered just a 0.01% return last year. Our fund’s return exceeded this by over 4%.
The LOM Stable Income Fund completed its fifth successful calendar year in 2016 continuing its track record of strong absolute and relative performance despite a fixed income market selloff in Q4. The Fund once again outperformed its stated benchmark over the period and continues to rank well against its peers.
For the year as a whole, the Stable Income Fund provided a total return of 4.02% which compares favorably against the benchmark return of 1.70% and represents outperformance of 2.32% on a net basis. The Fund return also includes a monthly dividend of $0.03 per unit, which translates into a current yield of 3.40% on the current Net Asset Value (NAV) price.
During last November’s election week market selloff, we increased the Fund’s equity exposure from 31% to 40% which set us up nicely to leverage the year-end stock market rally. On the other hand, some of our stock market gains were offset by the sharp rise in longer term interest rates which led to falling prices across most fixed income asset classes, including our holdings in preferred stock and higher yielding corporate debt. On balance though, we finished the year on a positive note.
Going forward, we anticipate continued volatility in income-producing assets as the Fed maintains a slightly more ‘hawkish’ stance in the New Year and looks to raise interest rates at least two or three times in 2017. While the prospect of rising interest rates is somewhat concerning for the markets in general, we see Federal Funds rate increases occurring at a very slow and measured pace. A slow adjustment or ‘normalization’ of short rates should allow longer duration securities prices to readjust more constructively after their initial ‘Trump tantrum’ sell off late last year. Already, longer duration securities are better bid with the S&P Preferred Stock index up over three percent since bottoming in mid-December.
With a new American government just beginning to settle into position while European elections remain on the near term horizon, many questions linger on the political front. Markets, however are firmly anticipating higher growth and the so-called ‘reflation’ trade. While some aspects of a reflation paradigm are a distinct possibility, we see those outcomes likely coming in fits and starts as government policies are debated and often delayed while politicians wrangle over the details. In the meantime, ageing boomers continue to seek income-generating assets. As well, pension funds – now underweight bonds and overweight equities after the stock market run up – should also keep a bid on fixed income assets in the short run.
We now see value in preferred stock issues trading in the six to seven percent range, as well as some Master Limited Partnerships (MLP’s). Higher yielding European dividend-payers, which have been dumped as investors exit the region on concerns over Brexit and the upcoming European elections, also look selectively attractive.
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.
