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Polygon Investment Management: Market Commentary
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April 2019

Economic and Market Update

Having recently spent several days in Washington at International Monetary Fund (IMF) and Bretton Woods Committee meetings, I thought it might be helpful to summarize some of the main insights from the discussions. Slower growth expected, globally, and in the U.S.:

As a backdrop, the IMF’s forecasts for global growth are skewed to the downside, primarily due to global trade tensions. For the U.S., the IMF is forecasting growth of 2.3% for 2019, slightly less than the previous forecast of 2.5%.

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February 2019

2018 was a difficult year for global investors, as virtually all asset classes and regions around the world declined. In the US, equities had their worst year in a decade, with the S&P 500 falling by 6.2%, while small cap stocks dropped by 11%. Elsewhere, markets were even more hard hit, with global equities down by 13.8%, reflecting falls in emerging markets of 14.7%, in Japan of 12.6% and in Europe of 14.3%. Nor did other asset classes escape the carnage. In the US, corporate bonds fell by 2.1%, real estate stocks fell by 4% and, globally, commodities declined by 11.2%.

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March 2018

I am pleased to be able to report that Polygon celebrated its fifteenth year investing on behalf of clients in 2018. For the year, we achieved an average return of 17.8% in our primary strategy, Global Growth, representing an outperformance of 1.6% against our benchmark of 70% global stocks and 30% US bonds. Since inception in 2003, our Global Growth composite has outperformed its benchmark by an average of almost 35 per year.

Diversification across asset classes and geography continues to be a mainstay of our investment process. With the dollar weakening against many currencies, for the first time in several years North America, was not the strongest performing region in the world in 2017. By comparison, Japan and Europe each grew by 24%, while emerging markets gained an impressive 38%. Given our global orientation, this environment resulted in improved, risk-adjusted performance across our portfolios.

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October 2017

As we head towards the end of the year, Polygon’s portfolios are up 10-15% year to date—depending on the client’s risk aversion—despite a conservative orientation. Our current asset allocation model is approximately 65% equities, of which half is in the U.S.; the remainder (35%) is roughly 50% short-term bonds and 50% alternatives. We believe that continued caution is warranted, given high stock market valuations (particularly in the U.S.), coupled with heightened geopolitical risk.

Having recently spent several days in Washington I thought it might be of interest to report on a flurry of meetings which we participated in. These included the annual International Monetary Fund gatherings, as well as a series of roundtable discussions sponsored by the Bretton Woods Committee. Speakers included Central Bank Governors from France and Sweden, Mohamed El-Erian, Chief Economic Advisor for Allianz, as well as senior officials from the World Bank and the IMF.

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March 2017

Now that the dust is beginning to settle from the results of the U.S. election, I thought it would be a propitious time to take a step back and review the recent past, as well as to take a look ahead. 2016 marked the fourth consecutive year during which U.S. equities out performed the rest of the world. With the dollar appreciating to near record levels against other currencies, and Europe continuing to struggle, these trends were a headwind for internationally diversified investors such as ourselves. Of course, the corollary is that U.S. assets have become increasingly expensive compared to the rest of the world, which suggests that, going forward, there will be ample opportunities for globally oriented investors.

In our core strategy, Global Growth, results for the year were in the 5%-7% range, comfortably outstripping the return of our benchmark (70% global Stocks 30% U.S. bonds), though we lagged the U.S. equity market. As noted above, this was primarily due to our global diversification, which itself is risk averse, but also partly due to our conservatism across asset classes. While I make no apologies for the latter, with hindsight we could perhaps have been more U.S.-centric as regards the former.

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