Monthly Market Report: March 2020

Treasuries and Gold Prove to be Valuable Diversifiers

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

Developed Markets losing steam

Developed Markets Tumble

In the month of March, international developed stock markets recorded a return of -14.12%. The Japanese and U.S. equity markets held up better than other markets, recording returns of -7.15% and -12.73%, respectively. Canadian and Pacific ex-Japan equities lagged the broader market. At the low point for the month, drawdowns reached -30% for most markets but partially recovered towards the end of the month. While economic growth came to a halt due to the global impact of the coronavirus and financial markets fell dramatically, value investors began to deploy cash and take advantage of low prices.

Volatility increasing in emerging market equities

Chinese Equity Market Holding Up

Broader emerging markets posted a -16.39% return for the month. China and Korea recorded returns of -6.59% and -10.22%, respectively. Brazil and Mexico lagged other markets in March. The Chinese equity market outperformed in March and YTD as they took exceptional measures to slow the spread of the virus. Their economy is beginning to accelerate. Other emerging markets have been hit hard due to the fall of oil prices or the depreciation of their currency. Emerging markets now trade at even more attractive valuations.

Global Sector

Energy Sector has Tough Start to 2020

Energy and infrastructure recorded losses of -29.18% and -22.96%, respectively, in March. Healthcare and consumer staples outpaced other sectors. The energy sector was negatively impacted by the steep fall in oil prices caused by the coronavirus and the price war between Saudi Arabia and other countries. Defensive sectors held up far better than the more cyclical sectors.

Domestic Equity Factors

Small-Cap Stocks Underperforming

In March, value underperformed growth in the small-cap space and large-cap space. Momentum recorded a loss of -13.93%. Relative valuations between value stocks and growth stocks are at historical highs as growth stocks held up better during the volatile month. Momentum and large-cap growth strategies performed well during the past one- and five-year periods.

Foreign Equity Factors

Value Underperforms in International Markets

In the international developed markets, value underperformed growth in the large-cap and small-cap space. Momentum recorded a loss of -9.56% while small-cap emerging market stocks posted a return of -22.08%. Over the past ten years, the size premium has been negative in the broader emerging markets, but positive in the international developed markets.

Liquidity Providers

Declining Rates Continue to Affect Savers

In March, the three-month Treasury bill index returned 0.29% for the month. With interest rates being cut even further, pushing Treasury bill and money market fund yields close to 0%, savers must choose between investing in riskier assets or face a drop in purchasing power. The CPI increased by 2.32% year over year through February.

Deflationary Hedges

Treasuries Protect Portfolios during Downturn

The returns of deflationary hedges were mostly negative for the month, with only Treasuries providing material protection to portfolios. Long-term government bonds and short-term government bonds returned 5.93% and 1.62%, respectively. The Bloomberg Barclays U.S. Agg Bond Index returned -0.59%. Riskier forms of credit such as high-yield bonds, leveraged loans, and BDCs were hit especially hard.

Inflation Sensitive Investments

Gold Bullion Shines

Inflation-sensitive investment returns were mostly negative for the month. Crude oil and the Alerian MLP recorded sizable losses of -54.40% and -47.23%, respectively. Gold bullion is up 6.22% YTD as investors sought safe havens. With monetary stimulus being overused during the past decade and further use providing minimal benefits, governments are resorting to unprecedented levels of fiscal stimulus to weather the storm. As government debt loads rise and yields are being artificially compressed, gold and gold miners may find their way into more investors’ portfolios.

World Currencies

Swiss Franc and Japanese Yen Remain Strong

Over the past three months, the U.S. dollar appreciated against most other major currencies except the Swiss Franc and Japanese Yen. These other two currencies tend to hold up well during periods of economic stress.

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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