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MONTHLY MARKET REPORT: MAY 2019
Trade wars affect U.S. and Chinese equity markets
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA, CFP®[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4231″][/vc_column][vc_column width=”5/6″][vc_column_text]U.S. Stock Market Drops -6.39%
In the month of May, international developed stock markets fell 4.73%. The U.S. and the UK lagged other developed regions, recording losses of -6.39% and -6.00%, respectively. The Pacific region and Canada held up well amidst all the volatility. 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.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4901″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4237″][/vc_column][vc_column width=”5/6″][vc_column_text]Emerging Markets Mixed in May
Broader emerging markets posted a loss of 6.24% for the month. Much of the losses were from the Chinese and Korean markets. They recorded losses of -13.09% and -9.30%, respectively. However, Russia, Brazil, and India all took a step forward in May, highlighting the importance of diversification across regions and countries. Emerging markets are still trading at attractive valuations relative to the U.S.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4902″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4234″][/vc_column][vc_column width=”5/6″][vc_column_text]Utilities and Infrastructure Hold Up Well in Volatile Month
Utilities and infrastructure recorded minimal losses of 0.91% and 1.33%, respectively. Information technology and energy dropped in May, posting returns of -8.49% and -8.25%, respectively. Year to date returns are strong across most defensive sectors.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4909″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4232″][/vc_column][vc_column width=”5/6″][vc_column_text]Value Underperforms Growth
In May, value underperformed growth in the large-cap and small-cap space. Momentum recorded a loss of 4.62%. 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.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4907″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4233″][/vc_column][vc_column width=”5/6″][vc_column_text]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 loss of 2.01% while small-cap emerging market stocks posted a loss of 5.12%. Over a ten-year period, value has kept pace with growth while the size premium was positive in the international developed markets.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4908″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4236″][/vc_column][vc_column width=”5/6″][vc_column_text]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 rate of return. Investors can earn a similar annual rate on cash versus those of intermediate-term bonds. The CPI increased by 2.20% year over year through April.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4905″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4230″][/vc_column][vc_column width=”5/6″][vc_column_text]High Yield Takes a Step Back
The returns of deflationary hedges were primarily positive for the month. Long duration bonds outperformed with long-term government and municipal bonds returning 6.46% and 1.80%, respectively. The Barclays U.S. Agg Bond Index was up 1.78%. Emerging market bonds are up 7.33% 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.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4906″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4235″][/vc_column][vc_column width=”5/6″][vc_column_text]Price of Crude Oil and Natural Gas Volatile in May
Inflation-sensitive investment returns were mixed for the month. Crude oil and natural gas recorded losses of 16.21% and 6.04%, respectively. Inflation-indexed bonds and gold 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.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4903″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column width=”1/6″][vc_single_image image=”4238″][/vc_column][vc_column width=”5/6″][vc_column_text]U.S. Dollar Strengthens over the Past Quarter
Over the past three months, the U.S. dollar appreciated against the British Pound, Chinese Yuan, and most other major currencies. Relative to the U.S. dollar, the British pound and Chinese yuan depreciated by 5.08% and 2.97%, respectively. For equity investors, earnings growth and dividends are far more significant to an investor’s return over the long run than the returns from relative currency movement.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”4904″ img_size=”full”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]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.[/vc_column_text][/vc_column][/vc_row]
