Same as It Ever Was – For Now
The trend continued in the global Equity markets last month with Growth continuing to outperform Value and the largest cap Growth stocks outperforming everything else. Our Equity allocations were up roughly 4.85% with MSCI’s All Country World Index (“ACWI”) benchmark up 6.14% and the S&P 500 up 7.17%. This brings the ACWI year-to-date (“YTD”) outperformance versus our Equity Factor-momentum strategy to roughly 11.4%.
That seems hard to comprehend until you look at the components. The NASDAQ 100 was up almost 40% YTD while Large Cap Value, as evidenced in the RPV Exchange Traded Fund (“ETF”) was down almost 25%, Small Cap US Equities are down anywhere from 11% to 18+% in the IJR and IJS ETFs, respectively, and Emerging Markets, as evidenced in the EEM and DGS ETFs are flat to down 9%, respectively.
These are dramatic disparities in performance, and they can be shown in examples across the market, like the market cap of Apple being larger than the entire Russell 2000 index, the broadest proxy of Small Cap US Equities. Or Tesla’s market cap exceeding the combined market caps of GM, Ford, Fiat-Chrysler, Honda, Toyota, and Daimler (Mercedes). There are other examples of this excess, and while there are ways to justify some of these valuations, there are also measures that suggest some values have hit extremes. You can see this in the options markets, which have historically been excellent indicators of extremes in sentiment. We can also see this in retail activity, which has been evident in the growth of trading platforms such as Robinhood (which was just fined for lack of disclosure on the fees they earn on clients’ trades, and although it loses money overall has an $11B private market valuation).
All of this is not to deny YTD performance, but rather to keep this all in perspective and remember that we are looking to long-term trends in performance. Those still favor Value over Growth, and global diversification in general, both in the long run having historically benefited investor performance.
In Fixed Income, overall exposures were up about 0.3% on the month with longer duration exposures detracting from the short duration and more credit-sensitive sectors, which had marginally positive returns on the month. The Fixed Income markets in general have had as dramatic a comeback in the performance of the credit-sensitive sectors as Growth Equities have had since the market rout in March. Our tactical strategy, held in the FWDB ETF, remains under-exposed to credit and duration risk, given continued high levels of market volatility.
Source: Morningstar
