As of April 30, 2015. Sources: U.S. Equity: Russell 3000®
Index; Non-U.S. Equity: Russell Developed ex-U.S. Large Cap Index; Emerging Markets: Russell Emerging Markets Index; U.S. Bonds: Bloomberg U.S. Aggregate Bond Index; Global REITs: FTSE EPRA/NAREIT Developed Real Estate Index; Commodities: Bloomberg Commodity Index Total Return; Hypothetical balanced portfolio: 30% U.S. Equity, 20% Non-U.S. Equity, 5% EM, 35% Bonds, 5% REITs, 5% Commodities. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
April 2015 likely reminded investors of the potential benefits of diversification
. Though there are just 4 months of returns, markets have seen stronger equity returns
outside of the U.S. This is a reversal of prior periods, when U.S. stocks had outpaced other major asset classes coming out of 2008.
During the month, the yield on the 10-Year Treasury Bond increased, putting pressure on both U.S. Bonds and Global REITs, which were both negative for the month (but still positive for the year). With many looking for the Federal Reserve to increase the Fed Funds Rate
before year-end, diversified investors may want to consider fixed income strategies
that are less reliant on U.S. Credit and look for other additional sources of fixed income return (bank loans, sovereign debt, currencies, non-agency mortgages, etc), noting that with those additional sources of return come differing risk levels.
The biggest performance outlier for the month was Commodities
, which were up 5.7% for the month. While this is not the first period Commodities moved positive
, it’s still worth noting, given the frustration investors expressed over continued Commodities underperformance
. Much of this positive momentum was related to the upward movement of oil during the month. (Note that Energy makes up just over 30% of the Bloomberg Commodity Index Total Return). Oil hit a low in March 2015 and generally trended upward through the end of April. Within Equities, Energy was the best performing sector – up 7.0% for the month (Russell 3000®
Energy Sector) vs. the broad Russell 3000®
which was up 0.5%.
Russia: Russell Russia Index; Hungary: Russell Hungary Index; China: Russell China Index; Portugal: Russell Portugal Index; Hong Kong: Russell Hong Kong Index; Morocco: Russell Morocco Index; Peru: Russell Peru Index; Indonesia: Russell Indonesia Index; Turkey: Russell Turkey Index; Greece: Russell Greece Index.
As always, country returns varied widely year-to-date, with April delivering very strong absolute returns. The BRIC countries (Brazil, Russia, India, China) were up collectively 12.0% in April alone (Russell BRIC Index). Markets are trying to balance
the strong dollar, cheaper (but increasing) oil, and global growth forecasts. It’s interesting that even with the stronger dollar, Non-U.S. equities (Russell Developed ex-U.S. Large Cap Index) still outperformed U.S. equities (Russell 3000® Index) by 6.4% YTD (through April 30, 2015).
Asset Class Dashboard – April 2015
The April reading of the Asset Class Dashboard reveals the last 12-month market environment as very much “in the typical range
” expected in the context of historical returns. Most equity markets were also within the typical range. After several months last year at the high end of the typical range, this is in-line with expectations
In spite of the strong YTD for Non-U.S. equity markets, returns are still below longer term averages.
Commodities remain the outlier, coming in below the historically typical range
for that asset class. April demonstrated the ability to rebound, and we would expect the 12-month return of Commodities to be more typical as oil finds its new equilibrium price – of which we have seen some evidence in April.
Large cap U.S. equity: Russell 1000 Index, Large cap Defensive U.S. equity: Russell 1000 Defensive Index, Large cap dynamic U.S. equity: Russell 1000 Dynamic Index, Small cap U.S. equity: Russell 2000 Index, Non-U.S. Equity: Russell Developed ex-U.S. Large Cap Index, Global equity: Russell Developed Large Cap Index, Emerging markets: Russell Emerging Markets Index, Commodities: Dow Jones – UBS Commodity Total Return Index, Global infrastructure: S&P Global Infrastructure Index, Global real estate: FTSE EPRA/NAREIT Developed Index, Cash: Citigroup 3-Month U.S. Treasury Bill Index, Global high yield bonds: Bank of America Merrill Lynch (BofAML) Global High Yield Index, Emerging markets debt: JP Morgan Emerging Markets Bond Index Plus, U.S. bonds: Bloomberg U.S. Aggregate Bond Index.
How do I read this chart?
This dashboard is intended as a tool to set context and perspective when evaluating the current state of a sample of asset classes.
The ranges of 12 month returns for each asset class are calculated from its underlying monthly index returns. The stated inception date is the first full month of an index's history available for the dashboard calculation.
Here is how to read the graphic on this page:
FOR EACH INDICATOR, THE HORIZONTAL BAR SHOWS FOUR THINGS
A GRAY BAR shows the full range of historical rolling 12-month returns for a sample of asset classes.
A BLUE COLOR BAND represents the typical range (one standard deviation away from the mean, i.e. 68% of historical observations) of rolling 12-month returns for these asset classes.
AN ORANGE MARKER represents the most recent 12-month return of the asset classes.
A WHITE LINE within the blue bar represents the mean of the historical observations.
The bottom line
April reminds investors of the power of diversification and sticking with asset classes that may have disappointed in prior periods. Investors may want an approach that provides strategic, measured allocations to all of the investing opportunities before them.