[vc_row][vc_column][vc_column_text]
MONTHLY MARKET REPORT: FEBRUARY 2019
Markets continue their 2019 rally
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]2019 Off to Strong Start
International developed stock markets in the aggregate rose by 2.57%. Pacific ex Japan and the UK outpaced other developed regions, recording gains of 3.77% and 3.39%, respectively. Japan, Canada, and the U.S. lagged in February. After a volatile December 2018 and the subsequent bounce back in 2019, investors are reminded that volatility is normal and trying to time the market is costly.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4894″ 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]Emerging Markets Flat in February
Broader emerging markets were flat for the month, posting a gain of 0.51%. China and India recorded gains of 3.45%% and 0.03%, respectively. Brazil and Mexico took a step back in February, dropping -4.49% and -4.19%, respectively. The public is focused on trade wars and geopolitical risks, but investors should be guided by the attractive relative valuations of emerging markets over developed markets.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4893″ 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]Information Technology and Industrials Have Strong Month
Information technology and industrials recorded gains of 5.88% and 4.63%, respectively. These two sectors are off to a strong start after a forgetful 2018. After a strong past year, healthcare is lagging other sectors.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4892″ 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 3.78%. Historically, different equity factors have their own periods of outperformance, usually in shorter time periods but sometimes lasting a decade. However, tilting portfolios to capture more of the value and size premium has historically compensated investors in the long run.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4891″ 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]Value Keeping Pace with Growth in International Markets
In the international developed markets, value underperformed growth in the large-cap space and in the small-cap space. Momentum recorded a gain of 2.73% while small-cap emerging market stocks posted a gain of 0.32%. Over a ten-year period, value kept pace with growth while the size premium was positive in the emerging markets.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4890″ 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 Short-Term Investment Option
With the U.S. equity market trading at a high valuation and fixed income spreads low, investors can turn to cash and get paid to wait. Investors can earn a similar annual rate on cash versus those of intermediate-term bonds. The CPI increased by 1.52% year over year through January.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4889″ 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]Emerging Market Bonds Off to Strong Start
The returns of deflationary hedges were mixed for the month. High yield bonds and leveraged loans bounced back after a rough 2018 Q4. The Barclays U.S. Agg Bond Index was flat for the month. Emerging market bonds are up 5.07% year to date. Emerging market debt may warrant a higher portfolio allocation if developed market growth continues to slow and their high debt levels become burdensome.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4888″ 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]Energy Starts Year Off Strong
Inflation-sensitive investment returns were mixed for the month. Crude oil and global infrastructure recorded gains of 5.55% and 2.35%, respectively. U.S. REITs and the Alerian MLP posted modest gains. Gold currently has favorable supply/demand dynamics for gold investors and provides a valuable hedge against currency debasement and inflation.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4887″ 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 Weakens over the Past Quarter
Over the past three months, the U.S. dollar depreciated against most other major currencies except the Australian dollar and Indian rupee. The yen appreciated by 2.35% relative to the U.S. dollar, and the Mexican peso appreciated by 5.72%. After a period of U.S. dollar strength, investors in international securities may get a modest tailwind if the U.S. dollar depreciates any further.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4886″ 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]
