A review of all sectors shows some clear themes across asset
classes. Bonds are out of favor and US equities are preferred. International
equities and bonds reflect repricing of rates and currencies while still
showing lower global growth.
There were significant equity style performance differences with
small cap and value showing strong gains versus large cap indices. Foreign markets and EM were the big losers as
a stronger dollar, higher rates, and the potential for trade wars dampened
investor expectations.
The best performing sectors were finance and industrials
with strong gains also in energy and materials. Finance reflects the
expectation that financial regulation will not get any worse. While industrials
and energy reflect improved growth potential and higher oil prices. The worst
performers were those sectors that are more sensitive to the level of interest
rates, utilities and real estate. The stretch for yield may be over.
Country equity returns were generally negative with double
digit loses in Mexico and Brazil. Mexico has been hurt by the expectations of
Trump trade wars while Brazil was a retracement with all emerging markets after
outsized year to date performance. Commodity focused countries like Canada and
Australia did better on a relative basis.
Bond performance was poor across the board for all sectors
and indicators suggest that there will be little turn-around with these poor
returns. Long duration hurt investor worst as well as international and
emerging markets. The foreign bonds saw further erosion from the strong dollar.
The only protection was in the high yield sector where there was continued
tightening of spreads especially in the energy sector.
