All I want for Christmas is a Bull Market

We founded Auour Investments in early 2013 and spent the spring and summer building the Auour Regime Model and constructing the investment processes underlying our strategies. In the fall of 2013, we launched the first of the Instinct family of dynamic core strategies: Global Fixed Income in October and Global Equity in December. The growth in assets has been rewarding yet we have had little or no help from the financial markets.

Since the launch of the strategies, the equity markets have experienced a total return of 9.2% over a three-year period[i]. That equates to around 3% per year in equity returns when the historic average is closer to 8%. Not really a bull market from our perspective. The fixed income markets[i] were not that exciting either, delivering a total return of -0.54%. The markets look even less helpful when you calculate the returns during the times we launched our additional three strategies.

Auour Downside Protection Returns Since Inception

Although the results may look mundane, one may need to be reminded that within the timeframe of Auour, the markets experienced dramatic volatility. Specifically, from May 2015 to Feb 2016, equity markets (using the S&P500 index for illustration) experienced a drop in value from peak to trough of 14.2%. This drawdown registers as one of the top 10 worst periods seen in our lifetime ( …and we are not young).

Top 10 Market Downturns

The last three years have seen no lack of fears placed into the markets. Greece, depression in oil exposed industries, deflationary trends in many developed economies, growth slowdown in China, (take a breath and resume) earnings recession in the U.S., Italian banks’ insolvency scare, Brexit, and contentious US presidential election season are just the ones on the top of our minds. The constant drumming of impending doom brought on by each tested markets and investors’ patience. Swift moves up and down in market prices were used to justify the extension of the bull market as well as the start of the next bear. It was lost on the talking heads that the bull market apparently ended abruptly in early 2015[ii].

Sir John Templeton, one of the wiser investors in modern times was quoted as saying “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” If we use that quote as a gauge, we do not see markets as meeting either end of the spectrum. Guarded yet participating may be the result that fits the current environment.

As we stated in a recent newsletter, we have been the participants of global experiments dating back to the start of the European Union. Some of those are ending now while others will continue and news ones start up. We will be addressing those in some greater detail in January as we elaborate on our insights into 2017 and beyond.

We wish you all a safe, festive, and relaxing holiday season.

Best regards,

The Auour Investments Team

[i] MSCI ACWI from December 1, 2013 to November 30, 2016 and Bloomberg Barclays Global Bond Aggregate from October 1, 2013 to November 30, 2016.

[ii] There is no exact definition of a bull or bear market and no clear delineation between the end of one and the start of another. We cling to the idea that if the loss of value can be listed in the top ten of losses, it should be viewed as a bear market.