Earnings continue to trend upwards as consumer strength carries into the corporate space. The final revision to second quarter GDP rose to a seasonally-adjusted annual rate of 3.1 percent. The Federal Reserve is expected to stay the course at their December meeting, formalizing the balance sheet normalization process and remaining committed to their expected path of rate increases, as outlined in the dot plot. The proposed tax legislation has significantly impacted market returns and will continue to do so..
ALTERNATIVES ADVANTAGE FUND OVERVIEW
● Long/short equity strategies provided strong performance as the House and Senate both passed versions of a tax reform bill, helping to propel the S&P 500 to a +3.07 percent return. All eleven sectors had positive performance, the sectors with the highest current tax rates leading the way. Information technology, the top exposure within the Fund and the industry, lagged due some of the lowest tax rates.
● Event driven strategies struggled under the weight of a lawsuit brought by the Department of Justice to block a widely held media transaction, leading to a decline in the stock of the target company of nearly 7 percent. However, deal activity was strong,as newly announced transactions increased 16 percent over the prior month. Deal spreads remain attractive providing for opportunities going forward.
● Relative value strategies were generally flat as interest rates and credit spreads moved slightly higher. Equity volatility strategies provide support with the VIX trading up to 13 mid-month, the highest level since August.
● Macro strategies had weak performance, with both discretionary and systematic strategies ending modestly lower. Currencies and commodities contributed to the negative performance. The U.S. Dollar declined against other major currencies while both industrial and precious metals also fell. Long exposure to equity markets helped offset a portion of the negative impact from currencies and commodities.