June 2017 Review
Bayou City Capital returned +0.55% during June after fees and expenses, raising 2017 performance to +7.65%. Following the Brexit event last summer, June marks a year of consecutive positive months for the Fund. This performance pattern can be credited to the Fund's conservative risk allocation in the current environment. Although the S&P 500's upward trend is fully intact, stocks have shown signs of stress recently. On June 29th, the VIX spiked 50%, (from 10 to 15) during a downturn in global markets, representing a significant change in stock options prices. The feast-or-famine nature of the volatility landscape (indeed, the VIX is back down to 10 at the time of this writing), requires a prudent approach to each month's performance target.
Looking forward, the Fed may reassert its claim as the primary mover of the markets in the short-term. Fed Chair Yellen recently hinted at the Fed's active reduction of its balance sheet (comprised of bonds purchased over the last several years), a concept which entails economic tightening beyond the scope of intermittent interest rate hikes. During the volatility spike on June 29th, of note was the rise in global bond yields, illustrating that a swift retreat from monetary stimulus would coincide with falling stock prices. As such, the Fed's rhetoric and the behavior of global bond prices will be a focal point in the months ahead.
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