Mexico Trade Surplus Triggers Unease

Mexico Trade Surplus Triggers Unease VanEckMexico’s large trade surplus may be a sign of weakening domestic demand. The current account improvements in Brazil need extra support from fiscal adjustment and structural reform.

There was a sense of unease in Mexico this morning despite the fact that the country posted a very large trade surplus in December (USD1.836B vs. expected deficit of USD0.9B). The reason is that the unexpected improvement was due to weaker imports – both petroleum and non-oil (see chart below). The latter may be interpreted as a sign of weakening domestic demand, which means extra headache for the central bank and an extra reason for the market to start pricing in at least one policy rate cut (37bps) on a one-year horizon.

Soft domestic demand and a large output gap are the main reasons why Brazil continues to run very small current account deficits (USD815M in December, and estimated 0.8% of gross domestic product in 2018). Meanwhile, foreign direct investments (FDI)1 remain large (USD8.95B in December), which translates into big positive basic balances (a sum of current account2 and FDI) and solid fundamental support for the currency. A major policy challenge for Brazil is to make sure that external balance improvements reflect more than just cyclical changes. Structural shifts (such as pension reform and fiscal adjustment) would make such improvements more sustainable and longer-lasting.

The Turkish lira is under pressure again this morning (113bps weaker against U.S. dollar as of 10 a.m. ET, according to Bloomberg LP). The market is readying for the release of the central bank’s quarterly inflation report on Wednesday, which will be followed by January’s inflation print next Monday. The consensus believes that the central bank will lower its inflation forecasts, which underpins the market expectations of substantial policy easing (975bps) in the next 12 months.

Chart at a Glance

Source: VanEck; Bloomberg LP

1 Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.

2 Current account is a record of a country’s transactions with the rest of the world, based on its net trade in goods and services, net earnings on cross-border investments, and net transfer payments.

IMPORTANT DEFINITIONS & DISCLOSURES

PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan’s index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG – JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

Handlarna gillar Brasiliens senaste drag

Traders som spelar Direxion Daily MSCI Brasilien Bull 3X ETF (NYSEArca: BRZU) måste tycka om vad de ser så långt från Brasiliens presidentval. Jair Bolsonaros senaste drag är att låta Banco Santander Brasil Roberto Campos övervaka Brasiliens centralbank. Brasiliens senaste drag signalerar Bolsonaros allvar när det gäller att hantera den svaga ekonomin.

Bolsonaro, som offentligt har medgett att hans kunskaper om ekonomisk politik är praktiskt taget noll, samlar ett team av toppackonomer för att förverkliga sina planer på att begränsa utgifterna samtidigt som de avyttrar regeringen från statliga företag och förenkla skattesystemet. Campos, finansdirektören i Banco Santander Brasil, ger bordet en praktisk upplevelse av handelskortet – vilken typ av riskbelöningsanalys som skulle kunna gynna landets ekonomiska politik framåt – vilket i sin tur skulle kunna gynna BRZU.

”Jag känner Roberto Campos mycket bra och jag kan försäkra dig om att vi kommer att vara i goda händer. Varhelst han har arbetat har det varit fantastiska resultat, säger Rogerio Xavier, partner hos SPX Capital.

Valet av Bolsonaro var meddelandet brasilianska väljare kommunicerade till världen att anti-etablisemanget var inne och traditionell politik var ute. Men nu börjar det verkliga arbetet och investerare i Brasilien-fokuserade börshandlade fonder kommer att hålla ett vakande öga på Bolsonara.

Bolsonaro ärvt ett flertal problem

Bolsonaro ärvt ett flertal problem som han måste ta upp under sitt presidentskap. Hur populär han är hos på Brasiliens befolkning kommer att leda till hans framgång. Naturligtvis är Bolsonario största uppgift att hjälpa till att dra ut landet från sina nuvarande ekonomiska underläge. Hans val uppfattas av marknadsexperter som en som lutar till förmån för landets kapitalmarknader och den senaste utnämningen av Campos för att leda centralbanken gynnar detta.

Detta bådar gott för brasilianer eftersom ekonomin kommer att vara först och främst på deras sinnen eftersom landet har varit långsamt att återhämta sig efter det att den hittills upplevt sin värsta lågkonjunktur. Arbetslösheten är fortsatt hög med tvåsiffriga siffror och landet drunknar i statsskulden-74% av Brasiliens BNP.

Bolsonaras vinnare häver stora förändringar för Brasilien, vars ekonomi är i en ömtålig stat trots att den återhämtar sig från en recession i 2015-2016″, säger Isabelle Mateos y Lago, tillgångsstrateg på BlackRock, i ett blogginlägg. ”Brasilianska risktillgångar hade rusat sedan Bolsonaros omröstningsutsikter började förbättras före den första omgången av valet. Ändå ser vi den avgörande vinsten från Bolsonaro. Han är allmänt uppfattad som mer marknadsvänlig än hans vänstermotståndare Fernando Haddad. Detta prissätts i stor utsträckning av finansmarknaderna. ”

Den årliga BNP-tillväxten positiv

Medan den årliga BNP-tillväxten har uppvisat positiva vinster senast, är den fortfarande inte på en nivå där ekonomer är optimistiska över de framtida tillväxtutsikterna. Före valet var den idealiska situationen att välja en president för att ta itu med Brasiliens nuvarande finansiella problem. Att välja en president som är marknadsvänlig för att hjälpa till att lösa problemen genom att genomföra politik som gynnar ekonomisk expansion och tillväxt. Detta kan potentiellt ske nu med Bolsonaro.

Enligt de senaste Yahoo Finance är BRZU nere 26,59% year-to-date, men med 22% procent de senaste tre åren. Bolsnaro skulle kunna vara den lösning som Brasilien behöver med en kraftbehövlig chock för landets politiska system. Om hans politik resulterar i en förbättrad ekonomi, kommer landet, dess invånare och Brasilien-fokuserade ETFer som BRZU båda att vara vinnare.

A good year for Japanese stocks?

JAPAN

2019 is poised to be a good year for Japanese risk assets in general and Japanese small cap equities in particular. In fact, against a backdrop of rising US rates and growing equity market volatility, Japanese small caps may prove to be a great place to hide in 2019.

Of course, Japan’s overall market is very dependent on global economic fortunes and as much as 64% of TOPIX earnings depend on overseas sales. Therefore, Japanese large-cap performance will always depend on the US and Chinese business cycles.

Unfortunately, neither the world’s largest nor the second largest economy is likely to accelerate significantly in the coming 9-15 months. Against this, Japan’s domestic demand is in a multi-year structural uptrend, led by rising domestic consumer spending and, importantly, a forceful re-investment cycle by small and medium sized companies rushing to upgrade their local capital stock. This cycle is not affected by global trade uncertainties and the principal beneficiaries are Japan’s small cap companies.

Jesper Koll, Japan Senior Advisor, WisdomTree

Emerging Markets

After facing a volatile 2018, we expect emerging markets (EM) to recoup its losses and post strong gains in 2019.

We believe negative sentiment stemming from the strong US dollar, ongoing trade wars and the collapse of the Turkish Lira, was a key reason for strong outflows from emerging market assets in 2018. Fundamentals for most EM economies continue to remain stable. More importantly, the idiosyncratic risks among a few emerging market economies such as Venezuela, Argentina, South Africa and Turkey are not accurate representatives of emerging markets. We have also seen significant economic strides being made by each of these countries since then.

Emerging markets boast of having the lowest valuations among any major asset class globally, with nearly a 30% discount to developed markets and they offer a free cash flow yield estimated at 5-7% over the next year.

We expect sectors such as healthcare, real estate, consumer discretionary and utilities to benefit the most from higher earnings growth. We expect to see a turnaround in earnings growth in Brazil, Mexico, Turkey and Russia. We are seeing further signs of a modest deceleration in global growth impact the Federal Reserves interest rate path for 2019 and lower oil prices. Both of which should lend buoyancy to emerging market assets.

Aneeka Gupta, Associate Director – Research, WisdomTree

Europe

We remain cautious of economic growth in Europe owing to the rise of political headwinds namely; Brexit in March 2019, dwindling popularity of the grand coalition party in Germany, the EU parliamentary elections in May 2019 and Italian government’s fiscal budget proposal.

Current European GDP growth at 1.9% in 2018 is expected to slow to 1.6% in 2019 and 1.5% in 2020.

The impact of the trade concerns on the European auto sector is now being felt across the supply chain. Original equipment manufacturers have faced the largest setback. As European stocks broadly derive almost 20% of their revenue from emerging markets, the recent weakness across emerging markets has also weighed on demand for European goods. European corporate earnings have been strong in 2018 however the outlook remains strongly tied to a resolution around the trade uncertainties.

While the European Central Bank remains on track to end its bond buying programme by the end of 2018, it intends to reinvest the proceeds of maturing bonds purchased under the programme for an extended period and so monetary policy is poised to remain accommodative for a greater part of 2019 which should keep the Euro significantly lower. We remain less optimistic on the outlook for European equities until political headwinds abate.

Aneeka Gupta, Associate Director – Research, WisdomTree

US

US markets are poised to witness a modest deceleration in economic growth as the unwinding of the pro-cyclical tax reform takes effect in 2019. However, we continue to remain optimistic on US equities after a strong earnings season in the third quarter in 2018 with average earnings growth expectations as high as 27%. More importantly even on stripping out the effect of the tax reform average US earnings growth declines to only 18% which in comparison to the rest of world is still very high.

The recent results of the midterm elections confirm that Trump’s key fiscal policies such as Tax reform.1 and de-regulation are likely to remain in place. However, the gridlock in parliament suggests we are likely to greater oversight on Trump’s policy on trade, infrastructure, healthcare and immigration reform.

After the recent sell-off of US equities in October, US equity valuations are attractive on a 21x price to earnings ratio.

We remain cautious of the recent sell off in the technology sector and favour more defensive sectors such as healthcare, utilities and consumer staples.

Consumer confidence remains at an 18-year high and unemployment at a 49-year low. Core inflation is around the 2% mark. Federal reserve Chairman Jerome Powell has dialled down his rhetoric of an aggressive monetary policy stance at his last meeting, as he acknowledged risks to global growth and rising uncertainty owing to trade wars. Against this backdrop, we anticipate the Fed’s interest rate trajectory will be more gradual in 2019.

Aneeka Gupta, Associate Director – Research, WisdomTree

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

Three thoughts on 2018 by Carmignac

Three thoughts on 2018

Three thoughts on 2018 By Didier Saint-Georges – Managing Director, Investment Committee Member

Detailed market predictions are only of limited value. For example, the consensus forecast twelve months ago was for the S&P to rise 6% over the year – a result the index achieved in just six weeks. The same analysts, by the way, had anticipated an average 10% increase in the S&P 500 in 2008. What they got instead was a 40% nosedive. The investors with the best track record in 2017 often expected at the start of the year a strong dollar and higher interest rates. However, they were capable of shifting gears, ditching their prior views and leveraging new trends. Or else they were lucky enough to be mainly invested in euros.

To be sure, crafting a central scenario is an essential first step. (We presented ours for 2018 in Carmignac’s Note of December, “Fooled by the Cassandra syndrome”.) But such a scenario must be underpinned by an analysis of both upside and downside risks – in other words, an understanding of the key challenges that could push markets dramatically upwards or downwards in the event of a major inflection.

Awareness of potential risks and rewards does not preclude an opportunistic approach. If anything, we should have been more opportunistic this past year. That said, in the long run, such an awareness is vital to generating solid performance across market cycles.

Those challenges fall into three distinct yet interdependent categories: market configuration (valuations, liquidity, positioning, sentiment, flows), macroeconomic factors (growth, inflation, interest rates) and political factors (sovereign risk, geopolitical risk, electoral upsets).

Our analysis suggests that in 2018 issues with a crucial impact on all financial markets will loom much larger than in 2017. That highlights the need to keep our eyes wide open as the year unfolds.

Political factors

The investment community widely assumes that this area is of only secondary importance to markets, and rightly so. It is even tougher to forecast political developments than economic changes, not to mention their effect on financial markets. Moreover, because this past year’s elections in the United States, the United Kingdom and continental Europe proved to be less momentous than anticipated, a good many investors now seem to feel they can safely ignore politics altogether. We don’t view that as such a good idea at present, and for three main reasons.

First, the financial and economic impact of political events often takes a while to show up on the radar screen. For example, we can reasonably expect the blowback from the pro-Brexit vote to cause greater economic pain in 2018 than in 2017. A weaker pound sterling will raise the cost of imports and thus take a large bite out of household spending. At the same time, the upcoming second phase of the negotiations between Britain and the European Commission on their future trade relations will generate additional uncertainty – regarding both the ultimate terms agreed to and the future of the May Government – that is likely to discourage investment in the country. And lastly, any monetary tightening by the Bank of England to defend the national currency would intensify the nascent economic slowdown. We are therefore starting the year with a short position on sterling which should pay off if a downward spiral gets going.

On the other side of the Atlantic, Donald Trump’s protectionist rhetoric, which was more or less put on the back burner in 2017, will probably move up the list of policy priorities in 2018. Once the US President is back on the economic warpath, most notably against China, he might well wield a more competitive dollar as a weapon. We have accordingly begun the year with ample exchange rate hedges on our dollar-denominated assets. On the other hand, it is worth noting that this outlook will potentially mean good news for our emerging market holdings, which we have beefed up. The second reason for taking politics seriously in 2018 is that several far-from-innocuous elections are scheduled to take place. In Mexico and Brazil, the outcomes will determine whether the reform policies under way will continue or not. Closer to home, the formation of a new Government in Germany in the coming weeks and the Italian elections in March will send out very clear signals as to whether the recent pan-European wave of reform initiated by French President Macron last year will hold out. Special attention must be paid in this environment to sovereign yields on the EU periphery. Assuming political developments take a favourable turn – our central scenario – Europe’s single currency, which is preponderant in our portfolios, will come out ahead.

We are also keeping a close watch on developments in the Middle East, a region currently wracked by the threat of political and therefore economic instability. As the historical record shows, lastingly autocratic regimes find themselves highly vulnerable when they finally make a timid attempt at reform, most often under pressure. (This is a danger that Chinese President Xi Jinping strongly senses and takes great pains to avoid.) We consider our holdings in Western oil producers, particularly American, and our gold stocks a high-potential form of insurance against mounting political risk in the Middle East.

Macroeconomic factors

“Any disappointments in relation to global growth would work to the advantage of growth stocks in the US and emerging markets”

Rippling out from China’s industrial stimulus programme in early 2016, the global economic upswing proceeded so fast that it proved to be the outstanding pleasant surprise of 2017. Citigroup’s US Economic Surprise Index reached an all-time record at year-end, and while the Eurozone equivalent saw less spectacular progress, it still jumped at end-November to its highest level since 2010. No offence is meant to economists when we point out that this index is a fairly reliable contrarian indicator of surprises to come. Now that the economic forecasts for 2017 have turned out to be way too pessimistic, they have predictably been revised upwards for 2018 – just when sentiment, consumer spending and output are going at full steam.

So even if it is fair to expect the global economy to keep up the pace in 2018, the risk this time around is rather that the news will be disappointing. Now, this outlook involves a certain amount of risk for equities, particularly those in cyclical industries fuelled until now by US tax reform and the recovery in Europe. But it also opens up opportunities, above all in the United States – which is where we see the greatest chance of disappointment, leaving the dollar more vulnerable and limiting the rise in interest rates, this scenario would give a hefty boost to growth stocks in the United States and the emerging markets, which make up a significant share of our holdings.

Source: Carmignac, 31/10/2017

Market configuration

“Market price distortion certainly reached a pinnacle in 2017”

Financial markets as a whole have experienced a historic bull phase for close to ten years now, and that’s putting it mildly. Worldwide stock market capitalisation has tripled since its 2009 low. Even more striking is the fact that bond and credit markets have also performed well. It is worth stressing the irony of this financial market chain reaction. After all, the failure of central banks to push up inflation was what justified those long years of systematic bond-buying through expansion of the money supply, whose inevitable effect was to boost all asset classes – in violation of economic rationality. The increasing weight of passive and algorithm-based asset management styles has amplified the trend.

Market price distortion certainly reached a pinnacle in 2017: the long-awaited economic upswing, which accelerated the stock market rally, has yet to trigger any serious adjustment in bond markets. But on that front, 2018 may well mark a major turning-point. Though the central banks won’t abruptly cut off the flood of cash they have poured into financial markets since 2009, they will gradually scale back their monthly worldwide injections, most likely to zero by the end of the year. In fact, the US Federal Reserve will go into net liquidity withdrawal mode for the first time ever. Steering such a historic shift without setting off violent market corrections is the unprecedented challenge soon to face central bankers. Meanwhile, now that even most conventional safe-haven assets have become exceedingly pricey, risk managers will need to make use of appropriate hedge instruments to actively manage exposure levels.

As we mentioned in the introduction, those three categories – political, macroeconomic and technical market factors – are distinct yet interdependent. A belated surge in inflationary pressure would encourage central banks to proceed faster with monetary policy tightening, underscoring in the process how overpriced bonds now are. Conversely, any disappointments on economic growth, or even inflation, would put central bank credibility to the test.

At the same time, investor sentiment, as currently reflected in valuations and historically low market volatility, will be sensitive to both central bank policy and the political environment. Financial markets form a system, one whose internal workings have experienced unprecedented distortion as a result of central bank intervention. Going forward, that system is set for a sea change. And when it comes, there will be radically new risks and opportunities for investors.

Source: Bloomberg, 2/1/2018

Investment strategy

Equities

Equity markets ended the year with a bang as Brazil and other emerging economies pulled out in front in December. With equity exposure close to the maximum allowed for our funds and thanks to our overweight position in emerging markets, we reaped the benefits of that trend. In sectorial terms, our balanced allocation policy enabled us to offset selective profit-taking on tech stocks with our commodity positions (gold mines and oil producers), which posted solid gains during the month. We have also continued to diversify our tech portfolio, seeking out new investment ideas with the potential to capitalise on the structural shifts under way. For example, during our latest study trip to the United States, we initiated a position in Shopify, a multi-brand, multi-channel e-commerce platform.

We also factored in the tax reform passed in the United States and accordingly raised our exposure to the US financial sector. Among other positions, we bought Synchrony Financial, a consumer financial services company. With the business cycle soon likely to peak, we are entering 2018 with a particular attention approach to stock-picking, coupled with a soundly diversified, balanced geographic and sectorial allocation.

Fixed income

The market had well anticipiated both the far-reaching tax-cut law passed by Congress and the Fed’s intention to hike interest rates again. The result was that neither change had much of an impact on US Treasury yields, which along with those of Germany gained less than 10 basis points during the month. Thanks to adroit handling by the central bankers – with Mario Draghi’s patient, prudent stance on normalising the Eurozone’s monetary policy worthy of special mention – safe-haven sovereign yields held largely steady throughout 2017. In contrast, 2018 is likely to be a more trying year for the European Central Bank as the Fed carries on with its normalisation plans. That explains why we maintain our short position on German government bonds.

Because we were invested across bond market segments offering attractive risk premia, we had little trouble managing the mixed developments of December. On the EU periphery, we took advantage of the sharp drop that Greek bond yields experienced in December, even as Italian yields crept upwards. In the emerging market space, our Brazilian debt positions sustained their rally in December, although our Mexican bonds were hurt by the geopolitical climate.

Currencies

The euro finished the year on a positive note, appreciating by over 10% against the dollar over the 12-month period. And as we believe that secular issues underlie the greenback’s current weakness, we plan to maintain our majority allocation to Europe’s single currency. A weaker dollar has translated into greater strength for emerging market currencies, except for a Mexican peso dogged by both domestic political woes and tense negotiations over the future of the North American Free Trade Agreement (NAFTA).

Having identified that risk during our latest trip across the Atlantic, we selectively put in place hedges on the Mexican currency in our emerging market funds. One last point on currencies potentially exposed to geopolitical risk. In our global funds, we continue to be sellers of the British pound.

Strong Finish to 2017

Strong Finish to 2017

Strong Finish to 2017 by VanEck, For the Month Ending December 31, 2017

Performance Overview

International moats, as represented by the Morningstar® Global ex-US Moat Focus IndexSM ( MGEUMFUN, or ”International Moat Index”), trailed the MSCI All Country World Index ex-USA in December (1.75% vs. 2.24%), but finished with full-year outperformance of greater than 3% (30.36% vs. 27.19%). The U.S.-oriented Morningstar® Wide Moat Focus IndexSM ( MWMFTR, or ”U.S. Moat Index”) followed a strong November with positive relative performance in December, toping the broad U.S. markets as represented by the S&P 500® Index (1.66% vs. 1.11%). The U.S. Moat Index finished the year ahead by roughly 2% (23.79% vs. 21.83%).

International Moats: Japan Weighs, Australia and Brazil Boost

Together with several firms from Japan, utilities and telecommunications firms struggled in the International Moat Index for the month. The bottom three performing companies in the International Moat Index were Japanese companies. Nippon Telegraph & Telephone Corp (9432 JP, -10.43%), which owns mobile telephone operator NTT DoCoMo, struggled in December after posting quarterly results generally in line with expectations in November. SoftBank Group Corp (9984 JP, -6.58%) also struggled in December. The company has a wide range of international and e-commerce investments in its portfolio, some of which compete directly with the aforementioned Nippon Telegraph & Telephone Corp. On the other side of the coin, financials and consumer discretionary companies contributed strongly to International Moat Index returns and the Index also received a strong boost from companies in Australia, Hong Kong, Canada, and Brazil. The International Moat Index standout was Brazilian aviation company Embraer SA (EMBR3 BZ, +26.46%), following speculation that Boeing was in talks to buy the company. Shares of Embraer SA shot up and approached Morningstar’s fair value estimate of $26 per share at year end.

U.S. Domestic Moats: Consumer Discretionary Shines

Consumer discretionary companies were the primary driver of strong performance for the U.S. Moat Index in December. While Express Scripts Holding Co (ESRX US, +14.51%) was the top performing index constituent in December, firms such as Lowe’s Companies, Inc. (LOW US, +11.48%), Twenty-First Century Fox Inc. (FOXA US, +8.11%), and L Brands Inc. (LB US, +7.40%) helped consumer discretionary lead the way. Tech firm Veeva Systems Inc. (VEEV US, -8.19%) was the worst performing stock in the U.S. Moat Index after issuing 2019 fiscal year guidance below expectations. The firm provides client relationship management services to the pharmaceutical industry and Morningstar lowered its fair value estimate four dollars to $65 on December 6th. The consumer staples and information technology sectors were the two sectors to detract from index performance, but only slightly.

Important Disclosures

This commentary is not intended as a recommendation to buy or to sell any of the named securities. Holdings will vary for the MOAT and MOTI ETFs and their corresponding Indices.