Thursday, May 5, 2016
April performance demonstrates risk-on behavior
Tracking a range of ETF's provides insight on the market trends for the last month. Just focusing on equity, fixed income, commodity, and real estate gives a good picture of the market landscape. Investors were in risk-on mode for the month even though the market benchmark S&P 500 or Barclays Aggregate indices did not move much. The real action was in the credit and commodity sectors.
Moving from large cap to smaller cap or value showed significant increase in relative returns. Returns outside the US were also significant gainers albeit a good portion of the excess gain was in the currency move. While the long bond underperformed, there were significant gains in the high yield and corporate bond sectors. These gains from contracting credit spreads occurred even with more downgrades in the energy sector. Sentiment in credits turned brighter with the strong gains in commodities. Real estate did not share the same gains as spread products. Developed international and emerging market bonds showed strong performance with gains in the currency component of returns.
We will note that this month shows one of the advantages of global macro over managed futures. With a broader focus, global macro can take advantage of credit moves or in factors other than our market exposure.