On the heels of strong global stock market returns in March, April was a solid month for investors. International stocks again led the way. In March the story was all about emerging markets; in April international developed markets took the lead. US stocks lagged, but still managed to eke out positive results. Tracking the winners? International developed market REITs scored the highest April returns. Year-to-date, emerging markets are on top, despite underperforming developed markets including the US in April
April By the Numbers
After a healthy 6.78% return in March, the S&P 500 index posted a negligible 0.39% April return. YTD, large cap index returns rose to 1.74%. Small cap stocks, as measured by the Russell 2000 index, also rose, returning 1.57% for April, 9.67% over three months, and back into positive territory YTD. With a sell-off in the technology sector, value indices continued to outperform growth indices YTD across all size ranges.
International Developed Stocks
In overseas equity markets, the MSCI EAFE Index, a large cap index of developed-market stocks, continued to rebound, posting a 2.9% return for the month and 3-month return of 7.58%. YTD, the MSCI EAFE index is close to being in the black. From a size perspective, the EAFE small cap index returned 2.3% in April, powering its three-month return to 10.37% and its YTD return to 1.68%. The value effect was positive in international developed markets for the month. YTD, the value effect was significantly positive for small caps but marginally negative for large caps.
Emerging Markets Stocks
The MSCI emerging markets index posted a slight 0.54% return for the month, raising its three-month return to 13.66% and YTD return to 6.29%. Value outperformed growth and small caps outperformed large caps.
Real Estate Investment Trusts
YTD, REITs in developed markets continued to outperform their equity market indices, but April returns for domestic and foreign REITs were mixed. US REITs lagged broad US Equity indices, returning negative -2.93% in April. Conversely, international REITs returned 3.4% in April, outperforming their broad market equity indices.
In fixed income markets, U.S. interest rates ticked up slightly. The 10-year Treasury rose from 1.78% to 1.83% in April, remaining lower than its year-end 2015 rate of 2.27% and year-end 2014 rate of 2.17%. The 30-year U.S. Treasury Bond closed at 2.68%, up from 2.61% at the end of March. The U.S. dollar swung to a 15-month low, as the euro closed at 1.1450, up from last month’s 1.1380.
Gold continued its advance to close at $1,294.90, up from $1,233.60 last month. Oil was volatile, finishing at $45.99, up from $38.25 the previous month. Commodities overall surged 8.5%. Over the past 12 months, the all-items consumer price index rose a modest 0.9%.
Slow Growth on the Horizon
In economic news, the IMF cut its most recent global forecast (in January 2016) from 3.4% to 3.2%, increasing China’s estimated growth rate from 6.3% to 6.5%, and reducing the US estimated growth rate from 2.6% to 2.4%. The World Trade Organization reduced its estimated trade growth rate for 2016 to 2.8%, down from 3.9% in September 2015.
The US Fed signaled no change in interest rates at its April meeting, citing a mixture of strengths (employment) and weaknesses (low inflation and slowing household spending). The Fed also made note of the U.K.’s upcoming June 23 referendum over whether to remain in the European Union (EU), suggesting that departure from the EU could have destabilizing consequences for the world economy.
Finally, April saw a deepening of Puerto Rico’s debt crisis. Thus far, Congress has not responded with any urgency to the unfolding debacle, in part because municipal credit markets do not appear to be deeply rattled. Even so, many investors have a big stake in the outcome.
Against a backdrop of slow-growth scenarios and continuing uncertainly, is now the time to adjust your portfolio? If you are appropriately invested for your time horizon and risk tolerance, we think not. Exposure to both US and non-US equities offers long-term diversification advantages that are not readily apparent in short-term cycles and periods of volatility. There is no reliable method of predicting what will happen next, or how the global pendulum will swing. Diversification is your best long-term ally.