According to the Fed’s website, one of the four core purposes of the Federal Reserve is to provide stability to the financial system, however, last quarter it seemed like they were doing the opposite. Despite knowing their comments are closely scrutinized, the Fed’s flip-flop commentary exacerbated an already volatile period. In early January, Vice Chair Fischer indicated 4 hikes in 2016, driving further panic in oil prices and subsequent negative effects on the credit markets. In early February, NY Fed President Dudley talked down the U.S. dollar, which drove oil up 8% in a day. The following week, Chairwoman Yellen spoke of further hikes in her congressional testimony, pushing risks assets to panic levels. Oil touched $26 a barrel (down 30% from $37 at year-end) and high yield credit spreads hit 840 bps, the 14th percentile, a level typically reserved for recessions. The S&P 500 was down 10.6% at its trough, as closedend fund discounts briefly widened to stressed levels. But all’s well that ends well; St. Louis Fed President Bullard’s dovish comments enabled risk assets to continue their bounce, only to be further strengthened by Yellen’s accommodative speech to the Economic Club in NY. Despite all the volatility, the S&P ended up a mere 1.3%. Our Absolute Return Strategy was up 1.6%, Durable Income was up 3.2% and the Balanced Strategy was up 0.9%. Additionally, each strategy is off to a strong start for the 2nd quarter
Read our full Q1 2016 Investor Letter