VOL. 129 | NO. 130 | Friday, July 04, 2014
The Worldly Investor
By David S. Waddell
With central bank stimulus offsetting moribund economic data and geopolitical depressants, this market continues its low volume, low volatility ways. With the absence of news and trading strategies capturing our attention at the moment, let’s take a look back at the second quarter and identify the winners and losers.
Geographic scoreboard: The turmoil in Eastern Europe and the Middle East captured the headlines, but the subsequent returns might surprise you. The top-performing market on the planet during the second quarter was the Ukraine, up nearly 30 percent. Russia wasn’t far behind, ranking 12th and returning 11 percent.
Overall, Eastern Europe grabbed the top spot among regional markets, while emerging markets outperformed developed markets, 5 to 2.5 percent. The U.S. remained strong, posting a 4.5 percent quarter, but lagged the Asia Pacific region, as Japan and Hong Kong cleared 6 percent respectively. Collectively, the world advanced a respectable 4 percent for the quarter.
Greece was the worst-performing market for the quarter, taking a well-earned breather after its 60 percent run over the past year. Surprisingly, the Arabian market complex did not budge during the quarter with Saudi Arabia and the UAE largely unchanged. The remaining worst performers don’t tie into much of a narrative.
Size and style scoreboard: Large companies continued to outperform small companies in the second quarter, with the Russell 1000 nearly doubling the Russell 2000. This trend was consistent overseas, although less pronounced. Midsize companies, the most durable category for years, properly aligned with their larger siblings. From a style perspective, growth continued to struggle relative to value. The small cap growth box was the worst address for the quarter, while the large cap value box was the best by a 5 percent margin, demonstrating the polarity.
Sector scoreboard: The sector analysis contains more second-quarter specifics. The sleepy energy sector awoke and gushed nearly 20 percent on the heels of supply fears and higher oil prices. In response, the consumer discretionary sector struggled for gains. The higher yielding sectors like real estate, telecom and utilities fared well as interest rates fell throughout the quarter in light of economic and political fears as well as additional central bank stimulus.
Bonds: The major market announcement of the quarter was the sizable monetary stimulus package deployed by the European Central Bank. Theoretically, this action should boost the economy (good for credit sensitive bonds), and lower interest rates (good for rate sensitive bonds). Checking the scoreboard, both personality types benefitted. Even inflation protection bonds performed well as U.S. inflation measures drifted slightly higher.
Bottom Line: The second quarter proved profitable for all types of investors. Stock and bond holders made money here and abroad. The market reactions to the turmoil in Europe and the Middle East have even been positive. The low volatility environment has enticed investors to continue allocating cash market wide. No one knows what the future may bring, but the present has been a present to nearly all investors.
David Waddell, who is regularly featured in the Wall Street Journal, USA Today and Forbes, as well as on Fox Business News and CNBC, is president and CEO of Memphis-based Waddell & Associates.