Developed Markets Continue to Rally
In the month of June, international developed stock markets returned 3.42%. Pacific ex Japan and Europe ex UK recorded returns of 8.01% and 4.86%, respectively. The U.K. and Japan lagged the broader market. Through the first half of the year, the U.S. market is down -2.45% and, international developed markets are down -11.49%. Monetary and fiscal stimulus have helped prop up markets. The European Union is currently negotiating a ~$800 billion fiscal stimulus package while the U.S. government is also considering another round of fiscal stimulus.
Chinese Equity Market Positive YTD
Broader emerging markets posted a 7.30% return for the month. China and Korea recorded returns of 8.98% and 8.09%, respectively. Russia and Mexico lagged other markets in June. The Chinese equity market is now positive for the year, recording a YTD return of 3.51%, which has outperformed other emerging and developed equity markets. China’s ability to control the spread of COVID-19 has helped its economy. Its coal consumption is already back to pre-pandemic levels as is oil demand. Chinese air traffic is down only 30% versus January levels. If other countries can enforce proper COVID-19 safety measures, then business activity will surely pick up.
Information Technology Pushes Market Higher
Materials and information technology recorded returns of 4.47% and 7.27%, respectively. Infrastructure and healthcare lagged other sectors in June. Information technology, healthcare, and telecommunications have positive returns through the first half of 2020. Information technology continues to lead the way as the products and services of many technology companies were instrumental in helping people and businesses operate normally; however, valuations are steadily increasing.
Large-Cap Growth Stocks Continue to Outperform
In June, value underperformed growth in the small-cap space and large-cap space. Momentum recorded a gain of 4.06%. 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, 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.
Foreign Small-Cap Companies Bounce Back
In the international developed markets, value outperformed growth in the large-cap space, but underperformed in the small-cap space. Momentum recorded a gain of 4.57% while small-cap emerging market stocks posted a return of 7.80%. Foreign momentum strategies have performed well year to date and over the past twelve months.
Interest Rates Remain Low
In June, 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 low rates for a long period of time, which will negatively impact retirees and people close to retirement. The CPI increased by 0.38% year over year through May.
Treasuries Continue to Reward Investors
The returns of deflationary hedges were mostly positive for the month. Emerging market bonds and short-term government bonds returned 2.91% and 0.07%, respectively. Long-term government bonds are up 20.97% year to date. The Bloomberg Barclays U.S. Agg Bond Index returned 0.63% in June. Riskier forms of credit such as high-yield bonds, leveraged loans, and BDCs recouped some of their losses from earlier in the year.
Gold Prices Continue to Climb
Inflation-sensitive investment returns were mostly positive for the month. WTI crude oil posted a gain of 8.69%. Natural gas dropped by -10.78% in June. Gold bullion is up 16.73% YTD, outperforming many other assets. Gold miners have also outperformed as they provide levered exposure to the gold price. Inflation-indexed bonds have a positive return in 2020, but this is primarily due to the decrease in interest rates.
Australian Dollar Appreciates vs U.S. Dollar
Over the past three months, the U.S. dollar depreciated against most major currencies except the Japanese Yen and the British Pound. The unprecedented amounts of U.S. fiscal stimulus may weigh on the U.S. dollar in the medium-term to long-term.
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.