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Market Resiliency Despite Decreasing Risk Appetite

2019 | Q3

Investors continued to bet on U.S. equities as the domestic economy remained stable, however, uncertainty around trade, global growth, monetary policy, and political chaos continued to keep gains modest. Despite U.S. equities reaching all-time highs and the S&P 500 index producing a +1.70% total return, investors remained cautious, pushing 30-year Treasury yields to record lows.  

Interest rates around the world continued to fall to record lows while the amount of negative-yielding sovereign debt grew. Furthermore, the Federal Reserve came to the rescue by cutting rates twice during the quarter, providing support for equities, while long-term Treasuries, represented by the Bloomberg Barclays U.S. Long Government/Credit index, produced a +6.58% return during the quarter.

U.S. Value Universe

In addition to markets being resilient, the performance gap between growth and value styles narrowed. After underperforming the Russell 3000 Growth index (+1.10% for the quarter) for the past decade, the Russell 3000 Value index (+1.23% for the quarter) finally outperformed during the quarter. Investors rotated into bond-like proxies and less economically sensitive sectors like consumer staples, real estate, and utilities as economic and geopolitical uncertainties rose. Below are some of the strategies that make up the PSN Top Guns U.S. Value Universe:

  • Donald Smith & Co., Inc.: Small Cap Value Equity (+9.8% for the quarter)
  • McClain Value Management, LLC: MVM Opportunity (+7.5% for the quarter)
  • CIBC Private Wealth Management: Equity Income Strategy (+6.1% for the quarter)

 

Japan Universe

Strategies overweight to Japanese equities were rewarded as the MSCI Japan index posted a +3.29% total return for the quarter. Japanese equities received a boost when President Abe’s Liberal Democratic Party won Upper House elections, giving comfort to equity investors that current policy will continue for the foreseeable future. Additionally, the U.S. interest rate cuts initially boosted the Yen, however, the cuts raised expectations that the Bank of Japan would follow suit, which weakened the currency. The following strategies made the PSN Top Guns list for the Japan Universe:

  • Lazard Asset Management LLC: Japanese Strategic Equity (+5.1% for the quarter)
  • Usonian Investments, LLC: Japan Value (+4.6% for the quarter)
  • NWQ Investment Management Co., LLC: Japan Equity (+4.2% for the quarter)

 

Core Fixed Universe

Treasury yields hit historic lows and segments of the Treasury yield curve inverted as investors turned to Treasuries due to rising concerns over global growth and trade. As expected, the Federal Reserve cut interest rates twice during the quarter due to the growing risks abroad. Additionally, the amount of negative-yielding sovereign debt grew, pushing foreign investors to Treasuries and higher-yielding corporate bonds, as the Bloomberg Barclays U.S. Aggregate index returned +2.27% during the quarter. Below are some of the strategies that make up the PSN Top Guns Core Fixed Universe:

  • PGIM Fixed Income: Long Duration Govt/Credit (+6.7% for the quarter)
  • Securian Asset Management, Inc.: Securian AM Long Duration Fixed Inc. (+6.5% for the quarter)
  • Goldman Sachs Asset Mgmt.: U.S. Long Duration (+6.4% for the quarter)

The complete list of PSN Top Guns and an overview of the methodology can be located here. If you do not have a login, you may register for complimentary access. For more details on the methodology behind the PSN Top Guns Rankings, or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at margaret.tobiasen@informa.com.

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