John Gorlow
| Jul 11, 2013
Quarterly Review
Prices of domestic and foreign stocks, bonds and other investments fell sharply towards the end of the 2nd quarter. Still, the Standard & Poor’s 500 stock index posted positive results, returning 2.91% for the quarter and 13.82% for the first half. All major US asset classes, with the exception of REITs, maintained positive performance in the quarter, with the broad market returning 2.69%. Asset class returns ranged from 3.74% for small growth stocks to 2.06% for large growth stocks.
The majority of international developed markets posted negative returns. Japan continued to outperform most developed market countries, returning 4.4% for the quarter and posting the best year-to-date return of any market; up 14.74%. A strong size premium present in the first quarter reversed in the second. Consistent with the first quarter, the US dollar appreciated relative to most major foreign developed currencies, with the exception of the euro. Across the size and style spectrum, large beat small and value outperformed growth.
Emerging markets continued to post negative returns, falling 8.08% for the quarter and 9.57% for the first half. Across the style spectrum, growth outperformed value by 3.41%. The US dollar appreciated vs. most emerging markets currencies.
REITs had negative performance during the quarter, with International REITs strongly underperforming US REITs by approximately 7%. International REITs experienced their first negative quarter in the last year and a half.
Commodities continued to decline, as the DJ-UBS Commodity Index gave up 9.5%. Precious metals bore the brunt of the decline as global economic uncertainty abated. Most soft commodities, lost ground, and energy traded down as global economic activity appeared to decrease.
Bond investors suffered. Yields soared in the US, in particular for maturities beyond 3 years. The 10-year lost significant ground, moving from a yield of 1.85% on March 31, 2013, to 2.49% at quarter end. The absence of meaningful levels of inflation in the US fueled negative returns for TIPS. Real rates turned positive in longer-dated maturities. Yield-seeking investors came under pressure as credit spreads widened in the difficult environment.