Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

The quarter began with a brief retreat as sellers focused on the turmoil in Ukraine and concerns over market valuations. In the downdrafts, biotech and momentum stocks were particularly shunned. However, by the end of May, M&A sparked a market rally, with mega cap stocks leading the way to record index highs. While macroeconomic data was mixed, volatility was low and ongoing central bank accommodation (highlighted by the ECB’s unprecedented fee on funds deposited at the bank) continued to drive return-seeking behavior.

Active manager performance was mixed as market moves decoupled somewhat from underlying fundamentals. Overall market volatility remained quite low with cross-sectional volatility and sector spreads all on the lower end of their historical ranges. On a factor basis, size (smaller), quality and momentum were fairly negative while value was neutral. In a manager style context, value managers held up reasonably well with core managers neutral, and growth managers quite challenged.