Another Solid Month for Returns for Equities
JAMIE VICECONTE
CHIEF MARKETING OFFICER
CO-CHIEF INVESTING OFFICER
2 min read
April saw all sectors of the Equity markets in positive territory, adding to what had already been a solid first-quarter performance. And for the first time in the last six months, we saw US Large Caps outperform most other sectors and geographies on the month. Counter to this, there has been a lot of discussion in the financial press, on blog posts, on Twitter, and numerous webinars from the Index and ETF sponsors, highlighting the relative outperformance of Value and Small Cap Equities globally and expectations that it will persist.
While there is significant anecdotal evidence of excess in the markets, we don’t see it in the Value and Small Cap sectors of the US markets or in International Developed and Emerging Markets Equities in general. Our portfolio allocations in Equities have biases to those sectors. They have benefited more recently, but that always puts our portfolios in a position of looking a bit more defensive relative to some of the broader market capitalization-weighted indices making headlines with daily all-time highs.
We’re not sure we can say that the handwringing over valuations in Fixed Income has been less than in US Equities. The public debate on interest rates and the Fed’s role in providing liquidity to the markets has been front and center. There are concerns about pent-up demand and inflation risks, just as there are other concerns that there will be long-term factors dragging on global economic growth after the effects of robust fiscal spending by developed countries globally subside.
This tug of war continued last month with a mixed bag of results across Fixed Income sectors. Looking at Commodity ETFs as a proxy for inflation, their strength in April and year-to-date (“YTD”) is reflected in the marginal to negative performance in credit-sensitive products and longer duration sectors of Fixed Income. This trend also has the potential to persist as we see more evidence of actual inflation in the reported numbers.
Our Equity exposures underperformed their MSCI All Country World Index (“ACWI”) benchmark by about 1% for April at approximately 3.2%. For the YTD, they remain about 0.75% ahead of the ACWI at roughly 9.9%. Thanks to reduced duration and some small Commodity and Utility exposure, our Fixed Income performance has beaten the Barclays Aggregate Index (“AGG”) by roughly 1% for April at 1.8% and by about 3.3% YTD. That puts the Fixed Income portion of the balanced accounts up approximately 0.75% YTD, with the AGG at -2.6%.
The markets generally feel toppy, both in Equities and Fixed Income, but we dare not predict their future direction. As always, we believe the best course of action is to stay diversified and invested, rebalance when given the opportunity, and not attempt to time moves in the markets.
