4Q16 Quarterly Commentary

US treasury yields ripped higher in the quarter after the election, finally moving to positive real yields. The dollar rallied to multiyear highs in response to the widest bond yield differentials versus German and Japanese yields in 30 years. Thus the reflationary sector rotation that began in the 3rd quarter accelerated in the fourth quarter, reversing years of low volatility, bond proxy leadership. This created a long lost tailwind for our deep value style. Low volatility and bond proxy stocks are still expensive, however, given the massive overvaluation that existed at midyear.