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 Q2 2020 PSN Top Guns – The Great Reversal

What a difference a quarter makes. After experiencing its worst quarter since the Great Financial Crisis during the first quarter, the S&P 500 index rebounded during the second quarter to post a +20.54% return, which marked the best quarter since 1998. Just as the coronavirus caused chaos during the first quarter, easing concerns regarding the pandemic, historic monetary and fiscal stimulus packages and the easing of coronavirus induced lockdowns provided optimism for investors which drove the historic rally. Additionally, economic data stabilized and signaled the worst may be behind us.

Not only did equities experience a steep rebound, so did oil prices. After plummeting to -$37 per barrel in April, crude rebounded to close the quarter at $39 per barrel. Furthermore, after falling to as low as 57 basis points during the first quarter, 10-year Treasury yields stabilized after the Federal Reserve (Fed) injected liquidity into bond markets. Despite the stabilized bond market, 10-year Treasury yields closed the quarter well below historic norms at 65 basis points.

Investor’s appetite for risk assets increased during the quarter as most believed markets and the economy bottomed in March, while easy monetary policy from the Fed added fuel to the equity rally. The increase in risk appetite during the quarter was evident in high growth tech stocks. Despite the turbulence during the first half of 2020, the NASDAQ Composite Total Return index returned +12.67% during the first six months on the shoulders of a +30.95% return during the second quarter alone. Meanwhile, investors were rewarded by overweighting small cap growth (Russell 2000 Growth index +30.58%) and mid cap growth (Russell Midcap Growth index +30.26%) strategies. Below are some of the strategies that make up the PSN Top Guns U.S. Mid-Cap Growth Universe.

 

The risk on environment was also evident overseas, as relaxed COVID-19 lockdown restrictions provided optimism for businesses and investors alike. In addition to the easing lockdown restrictions, agreements between EU policymakers regarding stimulus packages post-COVID-19 supported the market rally. The European Commission called for the power to borrow €750 billion for a recovery fund, which would be in addition to the previously approved package of €450 billion in April. Additionally, the ECB expanded its emergency asset purchase program to €1.35 trillion. The monetary support and stabilizing economic data helped the MSCI EAFE index post a +15.08% return while a weaker dollar provided an additional boost for emerging market equities (MSCI Emerging Markets index +18.18%). The following strategies made the PSN Top Guns list for the EAFE Equity Universe.

 

Investors unwound their safe haven trades during the quarter in favor of more risky corporate bonds as the Fed added liquidity and stabilized bond markets, while better-than-expected global economic data and relaxed lockdown restrictions increased investor sentiment. After being under immense pressure during the first quarter which saw credit spreads spike to distressed levels, high yield bonds benefited from the risk on environment and outperformed with a +9.61% (ICE BofA US High Yield index) total return during the second quarter. Meanwhile, investment grade debt, measured by the Bloomberg Barclays U.S. Aggregate index, posted a +2.90% total return. Below are some of the strategies that make up the PSN Top Guns Core Plus Universe.

 

The complete list of PSN Top Guns, and an overview of the methodology, is located on https://psn.fi.informais.com/login.asp under the “Products & Services” tab. If you do not have a login, you may register for complimentary access.

We also provide free PSN Top Guns model portfolios featuring our Top Guns managers and SMA funds vs. ETFs here

For more details on the methodology behind the PSN Top Guns Rankings, or to purchase PSN Top Guns Reports, contact Margaret Tobiasen.

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