Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
Markets started the month of August modestly as Argentina’s default and the rescue of Portuguese bank Banco Espirito Santo raised investor anxiety. Economic news was weak with the US unemployment rate edging up slightly and data disappointing in both China and Europe. Tensions in Ukraine remained elevated, and the conflict in Iraq intensified. However, as in many recent rallies, central bank accommodation fueled a mid-month recovery as the ECB moved closer to quantitative easing. As the month progressed, the softening of some geopolitical tensions helped to sustain the rally. Meanwhile at the Fed’s annual Jackson Hole meeting, central bankers worldwide generally affirmed the appropriateness of easy monetary policy given current economic conditions. Despite some concerns as to the timing of rate increases in the US, it’s safe to say that the liquidity punchbowl remains well stocked.
The US broad market Russell 3000 Index finished the month at +4.2%. US small cap stocks were slightly better with the Russell 2000 Index returning +5.0%. Outside of the US, developed markets were flat with the MSCI World ex USA returning +0.1% while emerging markets continued their strong performance with the MSCI Emerging Markets Index at +2.3%
Active manager performance was mixed with the best relative performance coming from overweights to growth, momentum, and smaller size. Factor positioning was more relevant as cross sectional volatility and overall market volatility continued to be significantly lower than historical norms. Volume traded was also extremely low. This mix tended to favor select growth managers while being more challenging for value and core managers.
