Markets in perspective: May 2015 in review

Capital Market Returns - June 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: Barclays U.S. Aggregate Bond Index, Global REITs: FTSE EPRA/NAREIT Developed Real Estate Index, Commodities: Bloomberg Commodities Index, Balanced: 30% U.S. Equity, 20% Non-U.S. Equity, 5% EM, 35% Bonds, 5% REITs, 5% Commodities U.S. Equity delivered a positive 1.4% return in May, but Non-U.S. Equity and Emerging Markets reversed their strong showing in April, returning -0.6% and -3.1%, respectively. Despite this setback, however, these two broad asset classes lead year-to-date with a strong 8.0% for Non-U.S. Equity and 6.7% for Emerging Markets. This helps support our longstanding view that investors can be well-served maintaining exposure to stock markets outside our country. U.S. Bonds also suffered negative returns in May, albeit modestly at -0.2%. Interestingly, despite an upward tick through the middle of the month, the 10-year Treasury rate ended with the same 2.12% it began with. For many investors, the belief that interest rates are bound to rise casts a pall over this asset class. Fortunately, despite this negative month, returns of U.S. Bonds year-to-date remain positive at 1.0%. The threat of rising rates may have contributed to the -1.5% return posted by Global REITs for the month. Commodities, already facing a challenging year, returned -2.7% in May to finish at -3.2% for the year so far.

Asset Class Dashboard - May 2015

The May reading of the Asset Class Dashboard continues to show 12-month returns for most asset classes squarely in the “Typical Range” of historical returns. Commodities remains the largest outlier, with the sharp drop in oil prices continuing to depress that asset class. Also noteworthy are Non-U.S. Equity and Emerging Markets, with 12-month returns meaningfully below the median of their historical returns (denoted by a gray line in the center of a blue bar). Asset Class Dashboard June 2015 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: Barclays 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

May not only reinforced the value of diversifying among different asset classes to balance out negative performing asset classes, it also reinforced the capacity of asset classes to swing from positive to negative over short timeframes.
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. The S&P 500® Index is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500® are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ. The Dow Jones – UBS Commodity Total Return IndexTM was renamed the Bloomberg Commodity Index, effective July 1, 2014. Bloomberg Commodity Index Total Return: Composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position. FTSE EPRA/NAREIT Developed Real Estate Index is a global market capitalization weighted index composed of listed real estate securities in the North American, European and Asian real estate markets. Barclays U.S. Aggregate Bond Index: with income reinvested, generally representative of intermediate-term government bonds, investment-grade corporate debt securities and mortgage-backed securities. The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 3000® Index: Measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell Developed ex-US Large Cap Index offers investors access to the large-cap segment of the developed equity universe, excluding securities classified in the US, representing approximately 40% of the global equity market. This index includes the largest securities in the Russell Developed ex-US Index. Russell Emerging Markets Index: Index measures the performance of the largest investable securities in emerging countries globally, based on market capitalization. The index covers 21% of the investable global market.
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