The return on risk assets was mixed during the third quarter of 2019. The S&P 500 rose 1.70% with dividends while the Nasdaq rose 0.18%. Non-US equities had a tougher time with the MSCI World ex-US falling 0.84% and the MSCI emerging markets index falling 4.16%. Like the second quarter, we witnessed increased volatility with a selloff during mid-August and a rebound in September. Within the US equity markets, there was a trend reversal of sorts with high flying growth stocks lagging in comparison to the previously beaten down value names. 

Investors continued to weigh the merits of a lengthening economic cycle despite disappointing manufacturing data. On the plus side, services industry data have shown resiliency and the national housing market has bounced with the aid of lower mortgage rates. Nevertheless, investors have taken solace with a Federal Reserve which has been content to cut interest rates and play it safe. In a world where risk free interest rates are at or less than 2% in the United States, the stock market which sports an earnings yield of 6% looks attractive in comparison. 

Filed under: Q3 | 2019 by Aldo Tarantini
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Interest rates fell precipitously in the third quarter across all developed markets. The US 10– year treasury yield fell from 2.00% at the end of Q2 to a low of 1.45% in early September before closing the quarter at 1.66%. With equity markets largely stable, the drop in interest rates was due less to a flight to quality and more to fears of a global economic slowdown. Credit spreads were volatile but largely unchanged during the quarter. Due to risk free yield falling, we saw record amounts of investment grade corporate debt issued as corporations raced to refinance existing debt and opportunistically issue new debt. Municipal bond yields plunged in concert with treasury yields. 

Filed under: Q3 | 2019 by Aldo Tarantini
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Hedge Funds declined during the third quarter as the HFRI Fund-of-Funds Composite Index decreased by 1.1%. The sector underperformed during the quarter as global stocks experienced an uptick in volatility amid negative headlines in August regarding the U.S.-China trade war and investor’s concern over the risk of an economic downturn. Specifically, ‘Equity Hedged’ and ‘Event Driven’ strategies were the worst performing strategies during the third quarter as the HFRI Equity Hedged (Total) Index and HFRI Event Driven (Total) Index decreased by 1.1% and 0.7%, respectively. We were pleased with our core managers’ performance during the quarter as the average return across our Alternatives platform outperformed the HFRI Fund-of-Funds Composite Index by 140 basis points. As we have added new managers to the platform in 2019, we believe our platform of managers are well positioned to close the year on a positive note.  

*Data taken from HFRI (Hedge Fund Research Indices) as of October 10th, 2019 

Filed under: Q3 | 2019 by Aldo Tarantini
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