Developed Markets Rebound
In the month of April, international developed stock markets recorded a return of 6.97%. The Canadian and U.S. equity markets recorded returns of 12.35% and 13.11%, respectively. U.K. and Japanese equity markets lagged the broader market. After the large drawdown in mid-March and the subsequent bounce back through April, international developed markets are now down only -17.91% year to date while the U.S. market is down -9.25%. Aggressive central bank intervention and government fiscal support, both domestically and abroad, to gradually reopen the economy and positive clinical results from potential COVID-19 treatments helped ease investors’ fears.
Chinese Equity Market Holding Up
Broader emerging markets posted a 9.26% return for the month. India and Russia recorded returns 16.14% and 11.49%, respectively. Brazil and Mexico lagged other markets in April. The Chinese equity market has outperformed other emerging and developed equity markets YTD. Recent economic data suggests their economy is beginning to accelerate with industrial demand turning positive. Retail sales have been slower to normalize. Oil-exporting countries are still struggling with low oil prices, but other countries will benefit from the lower prices.
Energy Sector Recoups Some Earlier Losses
Energy and consumer discretionary recorded returns of 15% and 15.73%, respectively. The energy sector is down -36.24% YTD. Utilities and consumer staples lagged other sectors in April. The energy sector bounced back after the difficult month of March. Energy investors may see some upside in the future from higher oil prices because oil producers are reducing production and investment in exploration and development. If economic activity normalizes, then energy companies will stand to benefit.
Small-Cap Stocks Underperforming
In April, value underperformed growth in the small-cap space and large-cap space. Momentum recorded a gain of 10.97%. Relative valuations between value stocks and growth stocks are close to historical highs based on the price to book valuation metric. Growth stocks have held up better this year as global investors seem to view them as safe haven investments, but their future earnings may not justify the higher valuations. Momentum and large-cap growth strategies performed well during the past one- and five-year periods.
Emerging Market Small-Cap Companies Bounce Back
In the international developed markets, value underperformed growth in the large-cap and small-cap space. Momentum recorded a gain of 9.26% while small-cap emerging market stocks posted a return of 13.59%. Over the past ten years, the size premium has been negative in the broader emerging markets but positive in the international developed markets.
Fed Continues Aggressive Monetary Policy
In April, the three-month Treasury bill index returned 0.01% for the month. Interest rates on Treasury bills and money market funds are close to 0%. Savers may face continued low rates, which will either cause a deterioration in purchasing power or a shift to riskier assets. The CPI decreased by -0.19% year over year through March.
Treasuries Continue to Reward Investors
The returns of deflationary hedges were mostly positive for the month. Long-term government bonds and short-term government bonds returned 2.00% and 0.18%, respectively. Long-term government bonds are up 37.33% over the past year. The Bloomberg Barclays U.S. Aggregate Bond Index returned 1.78% in April. Riskier forms of credit such as high-yield bonds, leveraged loans, and BDCs retraced some of their losses. However, investors in these fixed-income investments may have benefited from the Fed and its ability to provide investors with liquidity.
Gold Bullion and Gold Miners Continue to Outperform
Inflation-sensitive investment returns were mostly positive for the month. WTI crude oil posted a loss of -24%. However, some of this drop was influenced by the derivatives market and rolling oil futures contracts. Gold bullion is up 12.41% YTD, outperforming the broader equity markets. Gold miners have also outperformed as they provide levered exposure to the gold price. Even if economic activity were to normalize, the legacy of this year’s large-scale fiscal stimulus may create an even larger tailwind for gold prices.
Swiss Franc and Japanese Yen Remain Strong
Over the past three months, the U.S. dollar appreciated against most other major currencies except the Swiss Franc and Japanese Yen. These other two currencies tend to hold up well during periods of economic stress.
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.
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