Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist
Following the meaningful volatility of the prior quarter, markets were relatively muted in April. The Russell 3000 Index finished the month with a return of +0.4%. Small cap stocks led for the second month with the Russell 2000 Index returning +0.9% versus the Russell 1000 Index returning +0.3%. Returns were somewhat mixed outside of the US despite recent USD strength. The developed market MSCI World ex USA Index returned +2.3%, and the developing market MSCI Emerging Markets Index returned -0.4%. Rising interest rates and concerns over inflation put modest pressure on most segments of the fixed income market with the Bloomberg Barclays US Aggregate returning -0.8%.
In the US at the sector level, Energy (+9.5%) was the standout sector for the second consecutive month as oil prices rebounded from February’s interim trough to approach levels last seen during the dramatic decline of late 2014. The threat of trade tariffs and high interest rates continued to weigh on defensive/cyclical sectors such as Consumer Staples (-5.0%) and Producer Durables (-2.5%).
Outside of the US, Energy (+6.7%) was the standout sector as well with Utilities (+3.0%), Materials (+2.4%), and Consumer Discretionary (+2.3%) also additive. In a broadly positive month, Technology (-1.0%) was the only negative performer as valuation concerns drove a reversal of recent momentum. At the country level, some smaller markets were the best performers as Greece (+19.3%), Colombia (+7.8%), and Luxembourg (+6.6%) led. Alternatively, geopolitical concerns weighed on Turkey (-10.6%) and Russia (-7.8%).
Market volatility declined from recent elevated levels but remained above the soporific state of the prior year. Trade volumes also declined and remained well below historical averages. At the factor level, most measures were fairly subdued. Smaller Size was an incremental positive while Stability and Low Volatility were slight negatives. Equal-weighted portfolios outperformed market-cap weighted portfolios as market performance broadened out.