International Developed Equities Continue to Rally
International developed stock markets in the aggregate rose by 0.51%. The U.S. and the UK outpaced other developed regions, recording gains of 1.81% and 1.06%, respectively. Japan, Canada, and Europe ex UK lagged. Year-to-date returns have overturned much of 2018’s losses, reminding investors that staying invested is incredibly important.
Emerging Markets Up in March
Broader emerging markets posted a strong gain of 1.47% for the month. China and India recorded gains of 2.44% and 9.23%, respectively. Brazil and Korea took a step back, recording returns of -3.85% and -3.08%, respectively. Emerging markets should stand to benefit with the U.S. dollar cooling off and the central banks of developed nations refraining from further monetary tightening.
Consumer Staples and Information Technology Have Strong Month
Consumer staples and information technology recorded gains of 4.33% and 4.19%, respectively. Financials and industrials dropped, posting returns of -2.68% and -0.30%, respectively. Year-to-date returns are strong across all sectors with information technology leading the way.
Value Underperforms Growth
Value underperformed growth in the large-cap and small-cap space. Momentum recorded a gain of 1.17%. 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 globally in the long run.
Momentum Off to Strong Start
In the international developed markets, value underperformed growth in the large-cap space and in the small-cap space. Momentum recorded a gain of 1.74% while small-cap emerging market stocks posted a gain of 0.63%. Over a ten-year period, value has kept pace with growth while the size premium was positive in the international developed markets and the emerging markets.
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 earn a competitive rate of return. Investors can earn a similar annual rate on cash versus those of intermediate-term bonds. The CPI increased by 1.50% year over year through February.
Emerging Market Bonds Off to Strong Start
The returns of deflationary hedges were primarily positive for the month. Long duration bonds outperformed with long-term government and municipal bonds returning 5.21% and 2.62%, respectively. The Barclays U.S. Agg Bond Index was up 1.92%. Emerging market bonds are up 6.59% 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.
Energy Starts Year Off Strong
Inflation-sensitive investment returns were mixed for the month. Crude oil and inflation-indexed bonds recorded gains of 4.59% and 3.91%, respectively. U.S. REITs and the Alerian MLP posted modest gains. Gold has recorded flat to modest returns during this bull market, but currently has favorable supply/demand dynamics and provides a valuable hedge against numerous late cycle risks.
U.S. Dollar Weakens over the Past Quarter
Over the past three months, the U.S. dollar appreciated against the euro and Swiss franc. Relative to the U.S. dollar, the British pound and Chinese yuan appreciated by 3.03% and 2.35%, respectively. 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.
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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