Monday, June 1, 2009

A Strong Bottom of the Order

Long-suffering Orioles fans are enjoying an improbable turn of events. Even though the top five batters in the Orioles’ lineup have scored more runs than the top of any other lineup in baseball (I’m pretty sure about this…just go with me here), lately it’s the very bottom of the lineup that’s causing all of the excitement. Last week 40,000 fans showed up to welcome rookie phenom, Matt Wieters, to the big leagues. However, other players like Luke Scott, Nolan Reimold, and Cesar Izturis have been lighting it up for the past several weeks, allowing the top of the lineup to come back to earth in terms of its otherworldly performance, and providing a lot of excitement for fans who appreciate the benefits of a strong lineup from the top to the bottom.

During the month of May, it turns out that the bottom of Pinnacle’s portfolio “lineup” also had a superior month, as our alternative investment and other typically less volatile holdings turned in some excellent performance. While all of the attention has been on the middle of the lineup, meaning the performance of the stock market during the rally that began on March 9, 2009, during the month of May it was the unsung heroes of the portfolio that played catch-up, aided no doubt by the falling dollar. Our conservative international value funds, gold, commodities, and many of our managed funds in the alternatives group, all outperformed during the month. There are many factors that impact the relative performance of these presumably non-correlated and low correlated asset classes, but for the moment, Pinnacle investors are benefiting from a strong bottom of the lineup. When you consider how well the middle of the lineup, namely our U.S. equity positions, have performed for the past 7 weeks, it’s easy to see why investors feel a little better about their portfolio values of late. It’s also easy to see why adding portfolio volatility/risk on the basis of low correlations can be a risky proposition in itself. What goes up together can go down together, but that’s a story for a different blog post.

The following chart shows the performance of Pinnacle’s alternative investments and conservative international funds for the month of May: