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MONTHLY MARKET REPORT: AUGUST 2018
Cash a viable investment option; U.S. real estate climbing
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]Developed markets losing steam
Most international developed stock markets took a step back. The U.S. and Japan recorded gains of 3.24% and 0.22%, respectively. Europe ex UK and the UK equity markets dropped 2.26% and 4.19%, respectively. Investors should take care to not extrapolate recent U.S. outperformance. The declining benefits from fiscal stimulus and quantitative tightening should moderate expectations.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4389″ 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]Volatility increasing in emerging market equities
Broader emerging markets recorded a loss of 3.38%. Korea and India posted gains of 1.87% and 0.96%, respectively. Brazil and Russia fell by 11.34% and 6.99%, respectively. Increased US dollar strength and trade tensions have caused higher volatility since many emerging markets are export-oriented. However, relative valuations still strongly favor the developing nations.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4391″ 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 sector shines
Information technology and healthcare posted gains of 5.70% and 2.86%, respectively. Materials and energy lagged other sectors. Year-to-date returns still favor the more growth-oriented sectors such as information technology.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4393″ 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 gain of 4.71%. The size premium has been positive so far in 2018. 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=”4395″ 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]Growth outperforming in late part of the business cycle
In the international developed markets, value underperformed growth for the month. Momentum was flat for the month while small-cap emerging market stocks dropped by -2.10%. Small-cap emerging market companies have slightly underperformed their large cap counterparts so far in 2018.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4397″ 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 becomes a viable investment option
Money market fund and T-Bill yields have steadily risen as the Fed continues to raise rates. With the U.S. equity market near a historically high valuation and tight spreads in the fixed market, investors can finally turn to cash and get paid to wait. The CPI increased by 2.89% year over year, above the Fed’s target rate of 2%. Increasing trade tensions could bring more inflation to the U.S.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4399″ 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]Fixed income mixed
The returns of deflationary hedges were mixed. Long-term government bonds and high-yield municipal bonds recorded gains of 1.57% and 0.80%, respectively. Emerging market bonds dropped by 1.92%. Catastrophe bonds, which have become more popular as traditional fixed income face headwinds from quantitative tightening, rose 0.35%. Alternative sources of income with short durations can provide a measure of protection against interest rate risk.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4401″ 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]U.S. real estate steadily climbing
Inflation-sensitive investment returns were mixed. U.S. Natural Gas and U.S. Real Estate recorded gains of 4.45% and 2.98%, respectively. Global infrastructure and gold bullion were down. Dollar strengthening and rising rates has been a short-term headwind to gold’s return, but the metal may prove to be a valuable portfolio diversifier as the fiscal positions of many developed countries deteriorate.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4402″ 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 for the Mexican peso and Swiss franc. The Chinese yuan and Australian dollar dropped 6.32% and 4.11%, respectively, relative to the U.S. dollar. Over the past year, only the British pound has appreciated against the U.S. dollar.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4403″ 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]
