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MONTHLY MARKET REPORT: DECEMBER 2018
Investors faced losses in every major developed equity market in 2018; was a tough year for all foreign equity styles
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4231″][/vc_column][vc_column width=”5/6″][vc_column_text]U.S. Market Rocked in December
International developed stock markets in the aggregate dropped by five percent. Pacific ex Japan and the U.K. recorded the smallest losses of -1.96% and -3.79%, respectively. The U.S. and Canada dropped -9.05% and -8.37%, respectively. In 2018, investors faced losses in every major developed equity market.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4752″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4237″][/vc_column][vc_column width=”5/6″][vc_column_text]Mexico Records Strong Month
Broader emerging markets posted a loss of -2.59%. Mexico posted a gain of 3.29%. China and Russia took a step back, recording a drop of -6.05% and -3.49%, respectively. Heightened systematic risk has caused higher volatility, but relative valuations still strongly favor the developing nations over developed markets.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4753″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4234″][/vc_column][vc_column width=”5/6″][vc_column_text]Healthcare and Utilities Positive in 2018
Utilities and infrastructure recorded the smallest losses of -2.26% and -3.08%, respectively, for the month. Energy and financials lagged other sectors. Healthcare and utilities were the only sectors to end the year in the black, which suggests investors were seeking defensive sectors amidst all the volatility.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4754″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4232″][/vc_column][vc_column width=”5/6″][vc_column_text]Value Underperforms Growth
Value underperformed growth in the large-cap and small-cap space. Momentum recorded a loss of -8.22%. Small-cap companies were hit hard in 2018, but investing in smaller companies has historically compensated investors for taking on the added risk.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4755″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4233″][/vc_column][vc_column width=”5/6″][vc_column_text]Emerging Market Small-Cap Stocks Hold Up in December
In the international developed markets, value outperformed growth in the large-cap space, but underperformed in the small-cap space. Momentum recorded a loss of -4.82% while small-cap emerging market stocks had the smallest loss of -1.32%. 2018 was a tough year for all foreign equity styles.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4756″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4236″][/vc_column][vc_column width=”5/6″][vc_column_text]Cash is a Viable Investment Option
The Fed raised rates again in December, which should translate into higher money market fund yields and competitive cash returns relative to longer duration bonds. Additional rate hikes in 2019 may be limited after the four rate hikes last year. With the U.S. equity market near a historically high valuation and tight spreads in the fixed income market, investors can finally turn to cash and get paid to wait. The CPI increased by 2.21% year over year.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4757″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4230″][/vc_column][vc_column width=”5/6″][vc_column_text]Long-Term Government Bonds Shine
The returns of deflationary hedges were primarily positive. Government bonds, including Treasuries, performed well in December. The Barclays U.S. Agg Bond Index rose by 1.84%. Fixed income investments that are more correlated with equities dropped. High yield and leveraged loans dropped -2.19% and -2.54%, respectively. Extra care must be taken in the high yield and leveraged loan space as covenants have become weaker over time.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4758″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4235″][/vc_column][vc_column width=”5/6″][vc_column_text]Oil and Natural Gas Plummet
Inflation-sensitive investment returns were mixed. Natural gas and crude oil dropped -32.96% and -10.78%, respectively. Gold and inflation-indexed bond returns were positive. Gold bullion was a valuable portfolio diversifier as financial assets had a difficult month. Subsiding short-term headwinds, such as rising rates and a strengthening dollar, increase the investment appeal of gold.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4759″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4238″][/vc_column][vc_column width=”5/6″][vc_column_text]U.S. Dollar Continues to Appreciate
Over the past three months, the U.S. dollar appreciated against most other major currencies except the Indian rupee and Japanese yen. The yen appreciated by 3.4%, and the Indian rupee appreciated by 4.69%. The Canadian dollar and Mexican peso dropped -6.17% and -4.55%, respectively, relative to the U.S. dollar.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4760″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Brandon Yee, CFA, CAIA – Research Analyst
Brandon conducts investment due diligence for Versant Capital Management, and designs and implements tools and processes to support the firm’s research. His background in biology and finance help him to look at challenges from multiple angles, resulting in unique and well-rounded approaches and solutions.
Disclosure: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Versant Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Versant Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Versant Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the article content should be construed as legal or accounting advice. If you are a Versant Capital Management, Inc. client, please remember to contact Versant Capital Management, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Versant Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.[/vc_column_text][/vc_column][/vc_row]
