Broader markets continue to climb

Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA, CFP®

Developed Markets losing steam

Developed Markets Rise

In the month of June, international developed stock markets rose 5.94%. Japan and the UK had modest gains of 3.74% and 4.99%, respectively. The U.S. equity market climbed 6.98% for the month. Year to date returns have overturned much of 2018’s losses, reminding investors that timing the market is difficult and staying invested is the key.

developed markets performance
Volatility increasing in emerging market equities

Russia Outperforming in 2019

Broader emerging markets posted a gain of 5.49% for the month. Korea and Russia recorded gains of 8.77% and 8.72%, respectively. India lagged other markets in June, dropping 0.27%. Given India’s high valuation, investors are being more cautious. Emerging markets have gained 11.74% year to date, but still trade at attractive valuations relative to the U.S. market.

Russia Outperforming in 2019
Global Sector

Materials Have Strong Month

Materials and information technology recorded gains of 10.19% and 8.89%, respectively. Consumer staples and utilities lagged other sectors, posting returns of 4.03% and 3.60%, respectively. Year to date returns are strong across most defensive sectors.

Materials and information technology
Domestic Equity Factors

Value outperforms Growth

In June, value outperformed growth in the large-cap, but underperformed in the small-cap space. Momentum recorded a gain of 7.49%. 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.

Value outperforms Growth
Foreign Equity Factors

Momentum Off to Strong Start

In the international developed markets, value underperformed growth in the large-cap space, but outperformed in the small-cap space. Momentum recorded a gain of 6.46% while small-cap emerging market stocks advanced 4.81%. Over a ten-year period, value has kept pace with growth while the size premium was positive in the international developed markets.

Momentum Off to Strong Start
Liquidity Providers

With the Yield Curve Flat, Cash is an Attractive Investment Option

With the U.S. equity market trading at a high valuation and fixed income spreads low, investors can turn to cash and earn a competitive risk-adjusted rate of return. Investors can earn a similar annual rate on cash versus those of intermediate-term bonds. The CPI increased by 1.66% year over year through June.

Cash is an Attractive Investment Option
Deflationary Hedges

Emerging Market Bonds Shine

The returns of deflationary hedges were primarily positive for the month. Emerging market bonds and high yield led the way, returning 3.04% and 2.45%, respectively. The Barclays U.S. Agg Bond Index was up 1.26%. Emerging market bonds are off to a strong 2019, returning 10.60% 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.

Emerging Market Bonds Shine
Inflation Sensitive Investments

Gold Outperforming Over Past Year

Inflation-sensitive investment returns were primarily positive for the month with the exception of natural gas. WTI crude oil and gold bullion recorded gains of 8.79% and 8.76%, respectively. Infrastructure and real estate posted modest gains. Over the past year, gold has outperformed other inflation-sensitive investments. Given its favorable supply/demand dynamics and role as a hedge against late cycle risks, gold merits an allocation in clients’ portfolios.

Gold Outperforming Over Past Year
World Currencies

U.S. Dollar Strengthens Against British Pound and Chinese Yuan

Over the past three months, the U.S. dollar appreciated against the British Pound and Chinese Yuan, but depreciated against most other major currencies. Relative to the U.S. dollar, the British pound and Chinese yuan depreciated by 3.00% and 2.29%, respectively, over the past three months. For international equity investors, a weakening U.S. dollar will provide a tailwind to returns.

U.S. Dollar Strengthens

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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