This time of the year I like to look through some of my performance spreadsheets to see how things are going in various investment areas. Here are some of my observations (all YTD Return numbers below are as of June 19, 2018):
- Some of the domestic stocks are doing pretty good (technology and small caps) while Foreign stocks have reversed
- Overall commodities and energy in particular are doing ok after years of pain
- Despite all the trade war rhetoric, US Dollar is up 4% driven by rising interest rates stateside
- Bonds of all types are not doing great – again due to rising interest rates
For more geographic detail, the charts below show U.S. stocks (red line) compared Foreign Developed (blue) and Foreign Emerging (green). First panel is absolute performance since Jan 2017 and second panel is relative to domestic stocks. International equities enjoyed a period of strong relative performance until beginning of April 2018. Since then that trend reversed driven by rising dollar, political problems in the EU (Italy) and outflows from Emerging Markets as money flows back to increasing yields in the U.S.
- Norway is doing best so far this year (oil strength)
- U.S. is among just a handful of positive countries, while most economies are taking a break after very strong 2017
- Political instability and trade wars are hurting the nations towards the bottom
Sectors & Industries
- Various tech and consumer areas are still in the lead
- Energy and commodity plays are doing ok this year unlike recent past
- Income plays such as staples, telecoms, utilities and real estate have been hurt by rising rates
- In the bond land riskier and equity-linked instruments are doing better than the rate-sensitive ones (not a huge surprise)
- I added “SEC Yield” to this table which is an estimate of how much income an investor would receive over the next year if she buys a fund today. In the current rising rate environment it’s more telling than the standard 12m yields which are pretty stale.
- What really jumps out at me is that with a flat yield curve it really doesn’t pay much to hold longer-dated bonds. For example, you can get 2.6% in 3-7 yr Treasuries compared to 2.8% in 7-10yr and just 2.9% in 20 yr+!
- With ultra-low (or negative) yields in Europe and Japan, foreign bonds are not very attractive on the income basis. Save for Emerging Markets bonds but there are currency and trade issues there.
- Main takeaway is that the yields are starting to get interesting in a lot of safer areas which is beginning to affect capital flows.