Market insight and a highlight of Cabana’s year-to-date performance:

Cabana’s seven portfolios range from “Conservative” to “Aggressive” and include an income strategy and an “Accumulator” portfolio. Performance is as of market close on February 12, 2018 and is presented net of maximum advisory fees and commissions.

All Cabana Portfolios, with the exception of the Conservative, were down modestly for the week, in follow up to the steep selloff that began on February 2. At its bottom the broad U.S. Equity markets were down 11% from the January high. Bond markets didn’t fare much better, as sharply rising yields were the underlying impetus. The 20-year duration long bond was down 4%. I am happy to report that all of Cabana’s Portfolios outperformed the markets and remained within their target drawdown parameters, despite the huge and sudden spike in volatility. I will not belabor my commentary on January 30 or February 6, but I believe this selloff was needed and a long time coming. Moreover, it was due to concerns over economic strength rather than weakness. Yes, the national debt is out of hand, the Fed is selling more and more bonds to pay for it, and interest rates are going to rise BUT the fact of the matter is, corporate earnings are rising and interest rates are still near all-time lows. Cash is not a viable option with nominal rates still very low and bonds don’t pay as much as stock dividends. Real estate doesn’t like rising rates as a rule. Commodities are likely to do well late cycle and in a rising rate environment, but I am not sure we are there yet. It is all about relative value and money flows to assets with the best yield relative to perceived risk. In my humble opinion, stocks still look good compared to everything else.

Reallocation of Portfolios this Week:

As each of you know, we don’t make predictions beyond my thoughts outlined above. We follow a rules-based system. Accordingly, we are now responding to the sheer violence of the pullback and the corresponding shift in our algorithm by reallocating to more defensive positions. This reallocation took place by market close on Tuesday, February 13 in all of Cabana’s portfolios, except for the Alpha Income. This reflects our basic underlying tenant – strive to not lose money and when in doubt, be conservative. I believe this market will digest the rising rates and increased volatility over the next weeks and return to an uptrend, but we will be prepared if that is not the case, and the market tells us something that is not yet showing up in the economic data. Never disregard the collective wisdom of the market.

Cabana’s algorithm, which all of our portfolios use, is designed to evaluate market conditions and allocate investments with the goal of reducing exposure to potential market declines. Cabana invests in those assets that its algorithm determines to be particularly attractive at a given time. The reallocation that occurred this week is in response to the algorithm’s evaluation of the current market.

Year-to-date net-of-fees performance:

CONSERVATIVE: -0.02%

MODERATE: -0.45%

BALANCED: -1.42 %

GROWTH: -0.80%

AGGRESSIVE: -0.87%

ACCUMULATOR: -3.12%

ALPHA INCOME: -2.19%

Performance is presented net of the maximum advisory fees and commissions (2%). Numbers indicated with (+) for positive return and (-) for negative return.

-G. Chadd Mason, CEO

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