Capital Commentary is a quarterly view of the equities, fixed income and hedge fund markets from our Family Management specialists.
Hedge funds continued their upward trend into 2018 as the HFRI Fund-of-Funds Composite Index increased by 0.9% in 1Q. The alternative space started the year on a positive note amid an increase in volatility. Specifically, ‘Relative Value’ and ‘Equity Hedged’ managers were the main contributors to the overall performance, as the HFRI Relative Value Index and HFRI Equity Hedged Index increased by 0.8% and 0.7%, respectively.
US Treasury yields jumped rapidly during 1Q as a stronger than expected economy and slightly more hawkish Federal Reserve surprised investors. The 5-year US Treasury yield jumped from 2.20% to nearly 2.70% in late March before closing the quarter at 2.56%. Market participants are now trying to ascertain how aggressive the Federal Reserve will be with interest rate hikes for the remainder of 2018. Some expect another three hikes, while others are skeptical that the market can absorb this move without causing volatility in the financial markets.
The equity markets got off to a blistering start in 2018 with the S&P 500 rallying 7.5% and the Nasdaq 8.75% by late January. This rally was short lived however, as the S&P 500 finished the quarter with a negative total return and the Nasdaq gave back much of its gains. As was the case during 2017, technology and growth stocks continued to outperform value stocks. High dividend stocks in sectors such as consumer staples, utilities and real estate under performed during the first quarter due to rising interest rates.