September, 2023
Global markets declined in September, as Fed officials indicated that they intend to keep interest rates higher for longer during 2024 than they had anticipated earlier this year. Global equities, as measured by the MSCI World Index, fell -4.3% in September. For the second consecutive month, U.S. small-cap stocks were among the worst performing segments of the global equity markets, as rising rates particularly pummelled the prospects of small-cap companies with high growth potential but low levels of current cash flow. From a sector perspective, energy was the best performing segment of the global stock market on the back of surprisingly strong oil prices and was the only major sector within the MSCI World Index that posted positive returns during September’s swoon. Global bonds generally declined in September, with yields on the 2year U.S. Treasury reaching 5.17% mid-month, their highest level since June 2006. The prospects of a shallower easing cycle at the front-end of the curve sent yields at the long-end significantly higher, causing prices of long-term Treasuries to fall sharply. International sovereigns were weaker than their US counterparts, given the additional headwind of a stronger U.S. dollar.
In relative terms, prices of U.S. high yield bonds remained resilient, due to more modest exposure to duration at the index level the Bloomberg U.S. Aggregate Bond Index and the underlying resiliency of U.S. economic activity
While showing signs of deceleration, the U.S. economy remains adaptive and will likely avoid a “hard” economic landing or protracted recession in 2023. This is mainly driven by the economy being more service-oriented today than in prior decades, making it far less sensitive to interest rate changes. Our view is that inflation, employment growth, and wage pressures will continue to slow, and combined, this will be enough data to allow the Federal Reserve to end their hiking campaign, with a possibility of one more increase. That said, we believe the Fed is not going to consider cutting rates until they see durable declines in inflation. The team estimates that U.S. nominal GDP growth for 2023 has the potential to be ~4.5%, which could support U.S. corporate earnings. We believe that a stronger earnings outlook, coupled with decelerating inflation data and elevated corporate buybacks, could be a supportive environment for stocks.
That said, the team is cognizant that economic growth is decelerating given the cumulative effect of tighter monetary policy, shrinking credit availability, and slowing employment conditions. The growth paradigm outside of the U.S., remains challenged particularly in China, given a muted recovery post COVID, and Europe where central banks have a hard balance between persistent inflation and slowing growth. In this environment, our equity weighting declined with markets, bringing equity positioning to a slight underweight, with an emphasis on stable growth and quality. Over the month, we used the market weakness to add back to select sectors. Despite the recent increase in U.S. rates, we maintain exposure at the front and belly of the curve, on the view that U.S. inflation will follow a prolonged – but choppy – deceleration, the potential for the long-end to grind higher. The bulk of our fixed income exposure is in a diversified basket of corporate credit, securitized assets, and emerging market sovereigns. In-line with the fund’s risk aware mandate, we hold exposure to an array of portfolio hedges (in addition to duration), including derivatives, gold-related securities, cash and FX positioning.
Portfolio Manager, Russ Koesterich, has spoken as to why a moderation in economic growth may warrant an increased allocation to lower volatility stocks in portfolios, with a slight twist. One does not necessarily need to only look to traditional defensive sectors such as consumer staples or utilities for this exposure, but rather a focus on companies with a proven track record of stable revenue and margins.
Positioning overweights are concentrated in “stable growth” or “quality” companies that can generate earnings consistency and are aligned with long-term structural trends. This would include software and automation, positioned to grow from R&D, digital infrastructure, and innovation, as well as managed care and medical devices that benefit from aging demographics. In additional to automation companies, we also maintain industrials exposure via as defense companies that are attractively valued and in demand in a deglobalizing world.
Amidst heightened interest rate volatility, the information technology sector was one of the weakest over the month. While cognizant of the impact on higher rates, we used the market weakness as an opportunity to re-underwrite positioning and added to select technology companies, notably high-quality names who have generated consistent cash flows in varying economic cycles.
Given a more positive outlook for economic growth due to stronger domestic consumption, rising wages as well as increasingly shareholder friendly management practices in Japan, we increased exposure to select auto and capital goods companies positioned to benefit from consumption trends and governance improvements.
Consistent with the team’s more cautious near-term outlook, we used the low volatility observed across the options market to opportunistically add stock replacement trades whereby similar exposure was created via long call options while trimming the stock exposure on the same company, to maintain similar upside with less downside risk should prices decline.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/blackrock-global-allocation-fund-aust-fund-update-en-au-4.pdfAugust, 2023
Global markets generally declined in August, as volatility at the long end of the U.S. Treasury curve weighed on risk sentiment for much of the month. Global equities, as measured by the MSCI World Index, fell -2.4% in August. Non-U.S. stocks declined sharply as the U.S. dollar appreciated over 1.8% during the month. Chinese stocks fared particularly poorly as ongoing problems in the country’s residential real-estate sector and a lack of meaningful stimulus continue to weigh heavily on both consumer and investor confidence. From a style perspective, large-cap stocks generally outperformed their small-cap peers, while growth stocks outperformed value stocks. Global bonds generally declined in August on the back of Fitch Ratings downgrade of the U.S. government’s credit rating from AAA to AA+, a first by a major ratings firm in more than a decade. The decision sent yields on 10-year Treasuries to their highest level since last November, pushing yields higher across nearly all corners of the bond market and weighing sharply on stock prices. Non-U.S. bonds performed particularly poorly due to “sticky” inflation data out of Europe and an appreciating U.S. dollar. The one segment of the bond market that was positive was U.S. high yield. Robust July consumer data and a still strong U.S. labour market led investors to conclude that recession risks are diminishing, leading to a preference for owning credit spreads rather than long-duration bonds.
File:July, 2023
Global markets continued to rally in July on the combination of lower-than-expected inflation and better than expected economic growth. Global equities, as measured by the MSCI World Index, advanced +3.4% in July, with cyclical sectors such as Energy, Industrials and Materials among the best performing stocks in the global indexes. Outside the U.S., emerging market stocks, as measured by the MSCI Emerging Markets Index, were among the equity market’s best performing segments, as investors anticipated that China’s government would provide policy support to shore up consumer confidence as economic growth in the country has struggled to find its footing post COVID. Global bond performance was split in July. Corporate bonds, as measured by the ICE BofA/ML U.S. Corporate Index, advanced as the prospects of better than anticipated U.S. economic growth lowered the likelihood of recession and corporate defaults.
Long-dated U.S. government bonds, as measured by the ICE BofA/ ML 10-Year Treasury Index, fell, however, as the U.S. Federal Reserve resumed its increase of the Fed funds rate at the end of the month and signalled that further rate hikes might still be warranted in the future, absent continued progress on the inflation front. International bonds (FTSE Non-USD World Gov’t Bond Index), generally rose during the month, aided by a weakening U.S. dollar. Emerging market bonds (JPM EMBI Global Core Index) were boosted by interest rate cuts in a number of jurisdictions across Asia and Latin America.
Despite a historic rise in short-term interest rates and the abrupt tightening of monetary policy, we believe that the U.S. economy will likely avoid recession in 2H’23 and possibly the entirety of 2024. Many U.S. consumers, corporations, and municipalities have been able to withstand the impact higher short-term interest rates because they successfully locked in low, long-term fixed rate borrowing costs during the pandemic. In addition, with over $3 trillion in fiscal stimulus still yet to be spent and with significant excess savings remaining on household balance sheets, the lagged effect of massive fiscal spending is acting to materially off-set the lagged effect of restrictive monetary policy. With U.S. services spending still below its historical trend, U.S. inventory restocking likely to be a tailwind for economic growth, and inflation still annualizing at 3%, our view is U.S. nominal GDP may remain as high as 5% for the remainder of 2023, supporting earnings growth and taking some pressure off corporate profit margins. That said, this dynamic also implies stickier inflation and greater difficulty to generate slack in the system. As such, it is prudent to take the Fed at their word on the potential for additional rate hikes. We believe that inflation is likely to gradually come down over the coming quarters (albeit not to the equilibrium experienced in prior cycles) as supply shocks wear-off, restrictive monetary policy works to contain cyclical parts of the economy and the extended use of technology help push prices down. In this environment, we have increased our equity exposure to a moderate overweight, with an emphasis on stable growth and quality. We are constructive on fixed income as shortterm U.S. interest rates are at elevated levels relative to recent history, though maintain an underweight to duration as U.S. recession risk has receded. Most of our fixed income exposure is in a diversified basket of corporate credit, securitized assets, and emerging market sovereigns. In-line with the fund’s risk aware mandate, we hold exposure to an array of portfolio hedges.
File:May, 2023
Global markets were generally negative in May, as concerns about a potential U.S. debt default and possible credit downgrade, coupled with softer-than-expected Chinese growth, weighed on risk appetite. Global equities, as measured by the MSCI World Index, fell -1.0% in May, led lower by Chinese and European shares. Emerging market stocks, which possess a significant amount of both direct and indirect exposure to China, also struggled. However, in the U.S., large-cap stocks, as measured by the S&P 500 Index, experienced modest advances, powered by gains in some of the country’s largest software and semiconductor stocks, due to optimism related to advances in artificial intelligence (AI).
Global bonds fell in May, as investors evaluated the most recent U.S. inflation prints and concluded that the Fed might still have more work to do to contain price pressures. Although goods inflation in the U.S. continues to show signs of receding, services inflation remains stubbornly high. Duration sensitive long-maturity bonds, including 10-year U.S. Treasuries, were among the fixed income sector’s worst performers during the month, while overseas sovereigns were further weighed down by an appreciating U.S. dollar.
In May, we added to equities in recognition of a resilient US economy, continued strength across corporate earnings and a nominal GDP environment, that while decelerating, has proven to hold up better than expected at the beginning of the year. That said, we maintain a small underweight vs. our benchmark given near-term volatility caused by uncertainty around persistent inflation, tightening credit conditions and elevated valuations.
Within sector positioning, our overweights are concentrated in “stable” or “high quality” growth companies that can generate earnings consistency and are aligned with long-term structural trends. This would include industries such as medical devices and managed care that benefit from aging demographics, software and AI positioned to grow from R&D, digital infrastructure, and innovation, luxury goods manufacturers that benefit from a resilient consumer and defense companies that are in demand in a deglobalizing world.
File:April, 2023
We modestly added to exposure to gold-related securities (~1%), primarily through call options on gold ETFs. We felt the additional gold exposure had the potential to provide a small hedge to elevated equity volatility caused by concerns about the health of the banking sector. Gold prices could experience further support if real interest rates begin to plateau/decline after several quarters of sharp increases.
Underweight the U.S. Dollar (58% vs. 60% benchmark), as we believe that the U.S. Federal Reserve is approaching the end of a historic tightening cycle. Going forward, we believe there is room for the dollar to retrace some of its historic gains from 2021 and 2022 as central banks outside the U.S. continue to finish their own rate hike campaigns even after the Fed reaches its terminal level. As a result, we are overweight the Japanese Yen and Euro, as well as Mexican peso and Brazilian real.
File:March, 2023
Global markets generally posted sizeable gains in March after experiencing significant volatility mid-month, as investors shrugged off the first two major banking collapses in the U.S. since the 2008 Financial Crisis. Silicon Valley Bank (SVB) and Signature Bank were placed under the control of the FDIC after severe deposit flight quickly jeopardized their ability to continue operations. The FDIC’s rapid decision to guarantee all deposits at both banks along with the Federal Reserve’s commitment to provide substantial short-term funding availability to all banks, helped mitigate the risks of a full-blown banking crisis, but could not fully prevent investor angst from spreading overseas. Rapid deposit flight forced the Swiss National Bank to quickly arrange a forced merger between the nation’s second largest financial institution, Credit Suisse with UBS. Global equities, as measured by the MSCI World Index, rose +3.1% in March as a confluence of factors, including a sharp decline in real interest rates, swift U.S. regulatory action to backstop the banking system, and moderating February inflation data, combined to boost investor confidence. Global bonds rallied sharply over the month, as significant risks across the banking sector led investors to conclude that lending would be sharply curtailed, and as a result, a U.S. recession was now considerably more likely.
Despite the likelihood of significant contagion risk in the banking sector has probably been avoided, we are mindful that the deposit flight experienced by many U.S. regional banks is likely to weigh on future credit formation and increase the headwinds on an economy that is already decelerating. In addition, U.S. equity valuations are not inexpensive relative to their own histories and short-term U.S. interest rates remain elevated. In this environment, we remain underweight equities, though have become more constructive on non-US exposure. We are leaning into idiosyncratic risks with an emphasis on quality and pricing power in our core holdings, notably companies we believe are more likely to deliver consistent cash flows during a period of decelerating economic growth. We are more constructive on fixed income as short-term U.S. interest rates are at elevated levels relative to recent history. We have increased exposure to duration, taking it closer to neutral vs. the benchmark, reflective of the view that are approaching the peak of the U.S. Fed Funds rate. In-line with the fund’s risk aware mandate, we look to balance exposure to risk assets with a diversified allocation to portfolio hedges, with a reliance on high quality carry via income yielding assets coupled with derivatives and cash.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/blackrock-global-allocation-fund-aust-fund-update-en-au-3.pdfFebruary, 2023
Global markets relinquished large portions of their January gains following the release of several key pieces of U.S. economic data during February that came in higher than expected, notably U.S. non-farm payroll figures, producer price data, and PCE Deflator data (the Fed’s preferred inflation gauge). In each instance, these higher-than-expected economic statistics sent both stocks and bonds lower, as investors anticipated that the U.S. Federal Reserve would need to further tighten monetary policy to contain inflation. Global stocks, as measured by the MSCI World Index, fell -2.4% as investors braced for a “higher for longer” interest rate environment. Emerging market stocks were particularly hard hit due to a rebound in the U.S. dollar.
Global bonds performed poorly in February, as the higher-than-expected U.S. jobs and inflation data highlighted above stoked concerns about the likelihood of tighter U.S. monetary policy. Duration-sensitive long-maturity bonds, such as 10-year U.S. Treasuries and developed market International Sovereign bonds, fared particularly badly as investors concluded that the world’s major central banks are likely to keep short-term rates elevated for a protracted period. Looking ahead, we believe that stronger-than-expected economic data is indicative that the U.S. will likely avoid a deep recession. While a positive nominal U.S. GDP may spare corporate earnings from significant revisions, stubbornly high inflation will continue to be a headwind for equities as the Fed will likely maintain restrictive monetary policy for the near-term. In this environment, we remain underweight equities, though have become more constructive on non-US exposure. We are leaning into idiosyncratic risks with an emphasis on quality and pricing power in our core holdings, notably companies we believe are more likely to deliver consistent cash flows during a period of decelerating economic growth. We are much more constructive on fixed income as short-term U.S. interest rates are at their highest levels in a generation. While we believe the bulk of the U.S. interest rate hikes have occurred, we see continued tightening from central banks (albeit at smaller increments), and thus maintain a partial underweight to duration (notably via Japanese rates). In-line with the fund’s risk aware mandate, we look to balance exposure to risk assets with a diversified allocation to portfolio hedges, with a reliance on high quality carry via income yielding assets coupled with derivatives and cash.
File:December, 2022
Global stocks declined in December, ending 2022 on a down note and putting to rest the worst calendar year for equities since 2008’s Global Financial Crisis. Global bond performance for the month was mixed. Shorter-dated bond prices were mostly stable during December, but longer-maturity bond prices were negatively impacted by data indicating continued strength in the U.S. labor market. Mid-month, the U.S. Federal Reserve approved an interest rate increase of +0.50% and signalled its intent to lift rates through the spring to combat inflation. Although the Fed’s decision marked a deceleration from four consecutive increases of +0.75% beginning back in mid-June, investor concerns about the potential negative impacts that addition rate increases could have on the economy - and corporate profits – weighed on equity performance. In addition, the Bank of Japan’s decision to alter its policy of “yield curve control” (YCC) also weighed on global risk assets, as the consequences of the shift encouraged Japanese investors to sell their foreign securities holdings (including U.S. Treasuries) and repatriate capital back home, further draining liquidity from global capital markets.
Looking ahead, we continue to make a case that despite the challenges faced in 2022, people underestimate how adaptive, innovative, and flexible the US economy can be. As a result, we believe that the U.S. will likely avoid a material economic contraction in 2023 (and may avoid a recession altogether), as the strength of the U.S. labor market should provide structural support for overall consumption. Across asset classes, within the Global Allocation Fund, we maintain a neutral view on equities in the short-term as we except U.S. Federal Reserve (Fed) policy to remain restrictive in the coming months. In this environment, we remain patient and are leaning into idiosyncratic risks with an emphasis on quality and pricing power in our core holdings, notably companies we believe are more likely to deliver consistent cash flows during a period of decelerating economic growth. Our preferred exposures reflect a bias in favor of quality, GARP (growth at a reasonable price) and select areas of resources where we anticipate supply to remain constrained for the foreseeable future. We are much more constructive on fixed income as we believe the historic back-up in yields YTD represents a generational inflection point and continue to look for ways to build carry into the portfolio, notably via high quality investment grade credit and agency mortgages. While we believe the bulk of the U.S. interest rate hikes have occurred, we see continued tightening from central banks (albeit at smaller increments), and thus maintain a partial underweight to duration (notably via non-US rates). In-line with the fund’s risk aware mandate, we look to balance exposure to risk assets with a diversified allocation to portfolio hedges, with a reliance on high quality carry via income yielding assets within the portfolio coupled with a balance in cash, the U.S. dollar, and derivatives. Total equity exposure decreased, driven largely by market movement, as equities were down amidst investor concern that future rate increases could have corporate earnings and risk assets. Our core positioning remained stable, as we believe equities will remain volatile, but range bound in the coming months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/blackrock-global-allocation-fund-aust-fund-update-en-au-2.pdfNovember, 2022
Global stocks rose briskly in November, tacking on to their sizeable gains from October, as investors began to anticipate that the deceleration witnessed in recent U.S. economic data had the potential to lead to less hawkish monetary policy in 2023. Global stocks, as measured by the MSCI World Index, advanced +7.0% in November. Investor anticipation of a less aggressive Fed, coupled with sporadic indications that China’s government was prepared to loosen its “zero tolerance” policy toward COVID-19, combined to weaken the U.S. dollar and provided an extra boost to international equity markets. Performance was led by more cyclically sensitive sectors in November, including Materials, Industrials, and Financials, while several of the market’s more “defensive” sectors, including Healthcare and Telecom, lagged the broader indexes.
Fixed income investors finally enjoyed a reprieve in November, after enduring what has been one of the worst calendar years for bonds in nearly a halfcentury. Lower-than-expected inflation, coupled with a less restrictive tone from the Fed supported most fixed income classes to enjoy their biggest monthly returns of 2022. Ironically, despite the favourable “risk on” market tone, longer-dated U.S. Treasuries and municipal bonds outpaced higher risk portions of the bond market, including U.S. high yield and the Bloomberg U.S. Aggregate Bond Index. Meanwhile, overseas, the combination of lower-than-expected inflation and a falling dollar, combined to propel the returns of non-U.S. developed and emerging market bonds to the top of the asset class.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/blackrock-global-allocation-fund-aust-fund-update-en-au-1.pdfOctober, 2022
Most global stock markets posted an impressive recovery during October, following a very turbulent descent in September. The most significant factor that aided stocks over the course of the month - particularly in the developed markets - was the resiliency of corporate earnings. Global stocks, as measured by the MSCI World Index, advanced +7.2% in October. U.S. small-cap stocks were October’s best performers, as the Russell 2000 Index notched a gain of +11.0%. Along with U.S. stocks, European equities (as represented by the MSCI Europe Index) also posted strong gains, despite elevated inflation data and a challenging growth outlook.
Emerging market equities continued to struggle, however. Bonds fell during October, as investors received almost no evidence indicating that elevated levels of inflation are about to recede, or that the U.S. Federal Reserve is poised to pivot from its restrictive monetary policy stance. U.S. Treasuries fell along the entirety of the curve, particularly 10-year maturities. U.S credit had a mixed month, as lower quality high yield bonds (as measured by the BofA/ML U.S. High Yield Index) rallied along with stocks on profit resiliency, but investment grade bonds (as measured by Bloomberg U.S. Aggregate Bond Index) - which are more duration sensitive than high yield - modestly declined. NonU.S. sovereign bonds modestly rallied as the U.S. dollar weakened from recent highs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/blackrock-global-allocation-fund-aust-fund-update-en-au.pdfAugust, 2022
The Fund added exposure to select European luxury retailers positioned to benefit from significant pent-up demand and a strong U.S. consumer, with a lower impact from adverse pricing impacts associated with higher inflation. While energy remains the Fund’s largest overweight, given the very strong sector performance YTD the team took profits in select oil & gas producers. This slight reduction also aligns with a slightly more cautious view on a potential short-term pull back from a broader deceleration in economic growth.
Total portfolio duration was +0.8 years as of June month-end, up from +0.7 years as of May month-end. While still a significant underweight relative to a benchmark duration of 2.6 years, the team has slowly added back exposure in the U.S. in recent months given the increase in rates YTD. That said, due to our expectation that rates have further to rise, we are not inclined to significantly increase our duration exposure at the current time.
We continue to emphasize spread assets with exposure in a diversified basket of credit, securitized debt, and various duration hedges. The aggregate exposure of the portfolio’s off-benchmark fixed income asset classes represented ~7% of AUM and is a key differentiator vs. more traditional “60/40” portfolios.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/190153810.pdfJune, 2022
Global stock and bond markets resumed their declines in June as investors remain concerned that central banks will tighten monetary policy too aggressively, causing an unintended economic contraction. The U.S. Federal Reserve increased the Fed funds rate by 75 bps in June, its highest periodic increase in the bank’s key rate gauge since 1994, and strongly signalled that it will continue to increase the Fed funds rate at its upcoming July meeting. Inflation fears were top of mind for investors during the first half of June, as an elevated core CPI print for May caused bond yields to rise sharply. However, during the final two weeks of the month, concerns about economic growth moved to the forefront of investors’ concerns, causing stocks to fall sharply along with bond yields. Global stocks, as measured by the MSCI World Index, fell -8.7% in June, posting their worst monthly performance so far in 2022. US equities, as measured by the S&P 500 fell -8.3% during June and is now -20% on a YTD basis, capping the index’s worst first half of any calendar year since 1970. Within bonds, the Bloomberg U.S. Aggregate Bond Index, fell -1.6% in June and has now fallen -10.4% year-to-date, marking the worst first half performance for the index on record. U.S. high yield bonds and emerging market bonds fell particularly sharply during the month, as these riskier corners of the fixed income markets proved particularly vulnerable to the overall “risk off” tone and growing recession fears that dominated investor sentiment. Looking ahead, we believe the major risk to consumption and the broader economy isn’t an organic growth slowdown but the degree to which extreme food and energy price increases lead central banks to raise interest rates beyond the level that would have otherwise been necessary. Despite tightening financial conditions, we expect the U.S. to avoid recession in 2022 due to the relative strength of the economy coming into this slowdown. Capital spending is still near its peak, household and corporate balance sheets are pristine, household excess savings are robust, and the tightness in the labor market should provide structural support for consumption, even if it is slowing. This aggregate strength should be able to absorb a large amount of tightening – and slow down substantially – without stalling out economic growth. If our base case proves too optimistic, and Fed policy sends the U.S. into recession, we believe any contraction in economic activity is likely to be modest in historical terms, given the strength of consumer and corporate balance sheets. In a recent market insight published by PM, Rick Rieder, we outline a summary of the team’s macro views. In line with this cautious outlook, positioning remains underweight equities and duration, with a larger balance in cash to help buffer market volatility.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/189403664.pdfApril, 2022
Global stock and bond markets fell sharply in April as several members of the Federal Open Market Committee signalled that they were preparing to rapidly raise short-term U.S. interest rates in the coming months. Even a surprise contraction in U.S. Q1’22 GDP of -1.4% (due to a large U.S. trade deficit and a significant inventory re-stock during Q4’21) was dismissed by market participants as being immaterial to the Fed in regard to its view on the need to raise rates and reduce its balance sheet. The sharp rise in U.S. interest rates (both real and nominal) acted to significantly strengthen the U.S. dollar, which rose briskly relative to all other major currencies in Europe and Asia.
U.S. large-cap stocks, as represented by the S&P 500 Index, fell -8.7% in April, the index’s worst monthly loss since the onset of COVID-19 in March 2020 U.S. small-cap stocks, as represented by the Russell 2000 Index, declined every more sharply, falling nearly -10%. Meanwhile, the NASDAQ Composite Index fell -13% in April, it’s worst month since the Global Financial Crisis in October 2008. The NASDAQ’s YTD loss of -21% through April 30 not only places it in correction territory, but also marks the worst start to the year for NASDAQ in its history. International stocks fared poorly as well, with equity markets in Asia underperforming their U.S. peers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/187151531.pdfMarch, 2021
Global equity markets posted a positive return in March, on the back of the strong and rapid recovery from the COVID-19 pandemic, as evidenced by strong U.S. economic data, coupled with the expectation of another substantial stimulus package from Washington D.C. Dispersion across equities also picked up from significant sector rotation as investor sentiment flipped between cyclical, reopening trades to secular growth, stay at home trades. Market expectations of a rapidly improving economy continued to pressure the long end of the U.S. Treasury curve, causing the 10-year rate to back- up to 1.65%. While we do not expect a melt-up in yields from here, we do believe that real rates will continue to normalize with the significant pick-up in economic growth that is expected in the second half of 2021. It is also important to note that real rates remain historically low, representing only the 2nd time in 20 years where they are negative. As the economy reopens and growth continues to accelerate, a return to positive real rates should be viewed as a favourable sign.
Within the Global Allocation Fund, we believe markets are transitioning into a new regime characterized by a recognition of the potential for robust economic growth and broader implications for the eventual withdrawal of ongoing liquidity support. The combination of increased mobility, unprecedented fiscal stimulus, and very accommodative monetary policy has the potential to produce historic economic growth which will drive corporate revenues and earnings significantly higher. Rapidly accelerating economic growth is likely to lead to a continued rise in real interest rates. This outcome alone is unlikely to derail the current bull market, however, what is currently unclear is how rapidly future rate increases may occur and what actions the Fed might take in response to an unwelcome spike in rates - particularly at the long-end of the U.S. Treasury curve. As such, we moderately reduced our overweight to equities over the month, with a greater portion of the fund’s overall risk allocated to idiosyncratic names. Within equities, we are emphasizing growth/quality paired with cyclical exposure, with a preference for stocks and segments with above average profitability and earnings consistency. Within fixed income, consistent with our view of an improving economy, we remain underweight developed market government
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/170419141.pdfDecember, 2020
Monthly key portfolio themes: 67% equities, 23% fixed income, 8% cash, 1% Precious Metal.
Overweight: U.S., Continental Europe, China.
Underweight: Japan, Australia, Canada, and Latin America.
Overweight: Information technology, consumer discretionary, healthcare, materials, industrials, communication services.
Underweight: Consumer staples, financials, real estate.
Given the current environment, we believe that cash equivalents may be a more efficient means to hedge equity risk compared to short- and intermediate-term U.S. Treasuries. We also hold cash as a source of funding as we look to opportunistically deploy capital.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/163944164.pdfasset_class:
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Fund Update
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fund_features:
BlackRock Global Allocation Fund (Aust) (Class D) aims to provide high total investment returns through a fully managed investment policy utilising international equity securities, debt and money market securities, the combination of which will be varied from time to time both with respect to types of securities and markets in response to changing market and economic trends. Currency is actively managed in the Fund around a fully hedged Australian dollar benchmark. The Fund’s current investment strategy is to invest in global equities, fixed income and cash. The Fund aims to maximize total investment returns while managing risk and is generally diversified across markets, industries and issuers. The types of securities and markets the Fund invests in will vary in response to changing market conditions and economic trends. For example, the Fund may be substantially invested in US shares when they appear undervalued relative to other world share markets, while greater emphasis may be placed on fixed income securities when the risk of owning shares appears above average. This approach strives to achieve attractive total returns, while spreading the risks associated with investing in only one asset class or market.