Dear Friends
of TwinRock,
As we are approaching the end of 2016, our company is focused on operating efficiencies, harvesting those investments that can be had and ceasing all acquisitions for the remainder of the year, particularly until we see the effects of the 2016 post-presidential election. We are entering approximately eight years of an economic recovery, which is past average historical expansion cycles, though not surprising considering how deep the Great Recession was. However, while public companies continue to report positive earnings growth, the national unemployment rate is under 5.0% and the supply of new housing is below historical standards. The equity markets, a leading economic indicator, aren’t matching with these positive events.
It is possible post-election that the markets start on an upward trend again, but if so, for how long? One maybe two more years, or perhaps we follow in Japan’s footsteps. Therefore, we must be selective of the real estate we choose going forward, if at all. At TwinRock, we accept if we must start breaking down our tents and waiting for the next cycle or moving onto other opportunities, such as our Canadian Funds. Here is what we have observed in the markets this quarter:
- Stocks are down after beating earnings estimates and equity markets overall have been flat for two years
- Public homebuilder stocks have fallen significantly, yet Case Schiller reports positive home price appreciation excluding luxury home sales that have been contracting throughout 2016
- Residential rental rate growth is decelerating or going negative
- Interest rates are almost certainly expected to rise over the next year albeit slightly
- Rising premiums from Obamacare, and how much they rise, are going to affect the workforce housing
With all of that said, how much of the economic data has been skewed for the incumbent since we are in an election year? There are many reasons to be cautious, remain on the sideline, but be ready to act swiftly when opportunities arise.
Therefore, we strategically started TwinRock Value Opportunity Fund (our credit and hedge fund) this year, which has yielded a 22% return since February drastically outperforming the riskier S&P 500 during this time. If you invested in DIA or SPY ETFs the past two years, you have barely eked out a profit. Secondly, we have determined to open Rock Fund VII to target distressed Canadian real estate and currency. I leave you with this final question – would you rather invest near the end of an economic expansion or before one starts?
We look forward to sharing our thoughts again in our next quarterly report. In the meantime, should you have any questions, we look forward to hearing from you.
Very truly yours,