Monday, July 27, 2015

2Q2015 Market Observations

Below is a summary of what took place in the second quarter:

US Equities end flat for the quarter 

  • The S&P 500 returned (0.3%) for the quarter. Small cap outperformed mid and large cap. Mid cap was the weakest performing market cap segment with a negative return of -1.5%. 
  • The growth style outperformed the value style across the market cap spectrum. 
  • The health care and consumer discretionary sectors continue to outpace all other sectors. 
  • Utilities, energy, and industrials continue their negative streak with consumer staples joining the pack. 
  • Momentum and growth continue to be top performing factors while value and quality were weak performers. 
International and emerging market equities manager marginal gains 

  • MSCI EAFE returned 0.6% while MSCI EM returned 0.7% in the quarter. 
  • Small cap stocks outperformed in both international and emerging markets. 
  • In international developed markets, the Far East was the best performing region due to strong performance from Japan. The Pacific was the worst performing region due to Australia and weak commodity prices.
  • Emerging market performance was driven by the BRIC countries ex India. Brazil and Russia bounced off lows while China finished with strong gains despite a reversal late in the quarter.
  • Top and bottom performing sectors in international markets were telecom and financials at the top and health care and information technology at the bottom.
  • In emerging markets the top performing sectors were energy and health care with the bottom performing sectors being information technology and consumer discretionary. 
  • As in the US, momentum and growth were top performing factors in both developed and emerging markets. Beta and value were weaker factors in both developed and emerging markets. 
Global bonds sell off in the quarter 
  • Worries over rising US rates and a Greek default brought about volatility in bond markets. 
  • Long-dated Treasury bonds were the best performing segment of the bond markets as the yield curve steepened during the quarter. 
  • Short-term Treasuries and bank loans were the only positive performing segments during the quarter. 
  • Spreads widened for investment grade and high yield credit, negatively impacting returns. 
  • Non-US bonds posted negative returns except for dollar-denominated emerging market credit. Sovereign debt yields rose while currencies had a mix impact.
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