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MONTHLY MARKET REPORT: June 2018
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA
Developed Markets
Commentary
Developed Markets Fall– In the month of June, international developed stock markets in the aggregate fell by 1.10%. The U.S. and Canada recorded small gains of 0.64% and 0.21%, respectively. Developed markets, except the U.S., are slightly down for the year.
Emerging Markets
Commentary
Mexico Bounces Back– Broader emerging markets dropped 3.92% in June. Mexico and Russia posted gains of 9.24% and 0.37%, respectively. Brazil and Korea fell by 8.32% and 6.69%, respectively. Increased US dollar strength and trade tensions have caused higher volatility since many emerging markets are export-oriented. However, relative valuations still favor the developing nations.
Global Sector
Commentary
Defensive Sectors Shine- Consumer staples and infrastructure recorded gains of 2.84% and 1.96%, respectively. Industrials and financials dropped the most in June, pulling back 2.74% and 2.03%, respectively. June returns favored the defensive sectors as investors reassessed the current market environment.
Domestic Equity Factors
Commentary
Growth Outperforms- In June, growth outperformed value. Momentum dropped by 0.85%. The size premium has been positive so far in 2018. Investing in smaller companies has historically compensated investors for taking on the added risk.
Foreign Equity Factors
Commentary
Small Cap Emerging Market Companies Tumble– In the international developed markets, growth outperformed value for the month. Momentum posted a loss of 1.57% and is flat for the year. Smaller emerging market companies underperformed their large cap counterparts.
Liquidity Providers
Commentary
Savers Benefit from Rising Rates– Money market fund and T-Bill yields have steadily risen as the Fed continues to raise rates. The CPI increased by 2.72% year over year, above the Fed’s target rate of 2%. Increasing trade tensions could bring more inflation to the U.S.
Disinflationary / Deflationary Hedges
Commentary
Fixed Income Mixed in June– The returns of deflationary hedges were mixed in June. High yield municipal bonds and high yield taxable bonds recorded gains of 0.50% and 0.35%, respectively. Emerging market bonds and investment grade corporate bonds fell. Traditional fixed income will face headwinds as central banks continue to tighten and rates rise.
Inflation-Sensitive Investments
Commentary
Oil Prices Rise – Inflation-sensitive investment returns were mixed for the month. Crude oil and U.S. real estate recorded gains of 8.85% and 4.24%, respectively. Commodities and gold bullion were down for the month. Dollar strengthening has been a 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.
World Currencies
Commentary
U.S. Dollar Appreciates– Over the past three months, the U.S. Dollar appreciated against most other major currencies. The Mexican Peso and British Pound dropped the most relative to the U.S. Dollar. Over the past year, the Euro and Chinese Yuan have strengthened moderately against the U.S. Dollar.
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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