U.S. and international developed market equities regained their market leadership during February with strong returns after a weak January.
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Dovish testimony by Federal Reserve chairperson Janet Yellen and expectations of a spurt in economic activity due to pent-up demand from bad weather stoked the markets.
Emerging markets rallied as those markets continue to try to break out of their choppy performance over the past 12 months. U.S. large and small cap stocks were up 4.5%, international developed equities were up 6%, and emerging markets were up 3%. Broad U.S. bonds were up marginally.
Entering March, most major asset classes exhibit strengthened positive momentum with some modest relative performance rotation. Thematically, we favor a growth bias and are less inclined to position for a flight to quality (Ukraine crisis, notwithstanding). Most Julex strategies are fully invested and are positioned to target levels of expected risk.
Leading economic indicators and other economic data continue to show positive, though slightly conflicting, signs. The U.S. ISM Manufacturing Index improved to a stronger bias at 53.2 in February while the Economic Cycle Research Institute’s Leading Economic Indicator weakened modestly.
Globally, economic recovery is still playing out as the Eurozone economies are continuing to recover, but the Chinese economy continues to battle weakening fundamentals. In Japan, the super-size monetary stimulus is still in place to continue to bolster economic recovery.
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The US equity market recovered in February after a weak January and is still trading well above its 10-month moving average. The MSCI World Index also trended up in February. The strong rebound in September and October for emerging markets that paused during the past three months showed some life in February with mostly positive returns.
Global central banks continue supporting the equity markets with ultra loose monetary policies, though less so than previously through “tapering” actions from the U.S. Fed. Market volatility ticked down to levels seen during the bullish environment of Q4 2013 after the volatility uptick in January.
Within the context of the major global asset classes, our proprietary model continues to favor U.S. and developed market equities and has rotated out of the energy infrastructure MLP space in favor of REITs. Also, our model is signaling that certain countries within the EM space now look attractive.
In the Income strategy universe, we have moved away from a fixed-income focus with increased allocations to equity-type investments including preferred stocks and REITs.
Within the U.S. equity arena, we have increased the growth bias we held in previous months by entering materials and consumer discretionary sectors with an overall portfolio preference equally weighted between broad styles and specific sectors.
DISCLAIMER: The investments discussed are held in client accounts as of February 28, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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