Cooling inflation and optimism over the future path of interest rates led markets higher across the globe in November. The benchmark S&P 500 gained 5.59% on the month, while the Bloomberg Aggregate Bond index advanced by 3.68%, as interest rates fell across most of the yield curve. International markets were an even larger beneficiary of November’s rally, with the MSCI EAFE gaining 11.26% and the MSCI EM index moving nearly 15% higher, both buoyed by a sharp decline in the U.S. dollar.
Equity markets ended November with their second consecutive month of positive performance, following up October’s 8.10% rally with a 5.59% gain. The Russell 1000 Value index continued its leadership trend, advancing by 6.25% on the month, compared to a gain of 4.56% for its growth counterpart. As was the case in October, mega cap growth names were the largest drag on the relative performance of the Russell 1000 Growth index. In particular, Apple, Tesla, and Amazon all fell during the month, despite strong positive results for the index as a whole.
Non-U.S. developed equities, performed generally inline with U.S. stocks on a local currency basis. However, in a stark reversal from earlier in the year, the USD added meaningfully to dollar-based returns (+483 bps), as declining interest rates and cooling inflation within the U.S. softened the dollar. Emerging markets equities were a standout performer on the month (+14.83% is USD-terms), benefitting from a weaker dollar, as well as encouraging news around the potential loosening of China’s restrictive zero-COVID policies.
U.S. investment grade bonds rallied in a meaningful way during the month (+3.68%), as Fed Chair Jerome Powell gave markets their first hint that the Fed’s current pace of interest rate hikes may be slowing in the near future. This sent bond prices higher as rates tumbled across the yield curve, with the yield on the10-year ending the month more than 50 bps lower than where it began and the 2-year yield ending 25 bps lower. Similar to what occurred within equity markets, emerging markets were also a top performer within fixed income. On the month, EM local currency bonds gained more than 7%, seeing tailwinds from a combination of declining rates, an increase in investor appetite for emerging markets, and a weaker U.S. dollar.
The Bloomberg Commodity index posted a positive 2.74% gain in November, although performance was generally mixed across the commodity complex. Most notably, two of the index’s largest components, crude oil and gold, experienced divergent performance during the month. Gold gained 6.77%, as rates fell meaningfully within the U.S., while crude oil declined by more than 5%, with WTI prices falling below $74/barrel near month end. That said, commodities continue to be one of the very few asset classes in the black for 2022, ending November with a YTD return of +19.01% compared to a decline of -13.10% for the S&P 500 and a loss of -12.62% for the Bloomberg Aggregate Bond index.
Closed End Funds
Closed end funds had an overall strong month with aggregate discounts narrowing by roughly 100 bps. While spreads were generally flat within credit markets, CEFs benefitted as the VIX retreated toward a level of 20, which is generally in-line with its long-term average, and interest rates declined meaningfully, particularly at the long-end of the curve. This left the industry’s average fund trading at approximately 5.50% below NAV, compared to a long-term average discount of roughly 4.5%.
iCM Tactical Strategies
iCM’s tactical strategies, which utilize ETFs and/or mutual funds, performed relatively well on both an absolute and relative basis during the month. Our overall fixed income strategy benefitted from its out-of-benchmark position in emerging markets local debt, which was a top performing fixed income asset class on the month. Performance for our general equity strategy was supported by sizable overweights to U.S. value and non-U.S. developed stocks, as well as an out-of-benchmark position in emerging markets value equities. All three asset classes outperformed the S&P 500 by a sizable margin in November.
Integrated Capital Management, Inc. is an SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. This blog is intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security.
Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.
Any capital markets views are intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Outlook may change at any time given shifting market conditions. Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index
Closed end funds are exchange traded, may trade at a discount to their net asset values and may deploy leverage. When the strategy purchases shares of a closed-end fund at a discount to its net asset value, there can be no assurance that the discount will decrease and may possibly increase. If a closed-end fund uses leverage, increases and decreases in the value of its share price may be magnified. Distributions by a closed-end fund may include a return of capital, which would reduce the fund’s net asset value and its earnings capacity. Closed end funds are offered by prospectus. The prospectus and/or other applicable offering documents contain this and other important information about the investment strategy. You should read the prospectus and/or other applicable offering documents carefully before investing. Investors should consider the investment objectives, risks, charges and expenses of the investment strategy before investing. iCM uses third-party data that is believed to be accurate and complete. All data is subject to change.
TICE Blended Benchmark comprised of 32% S&P 500/8% MSCI EAFE/38% Barclays Aggregate Bond/20% Barclays Municipal Bond/2% Cash
FTSE NAREIT All Equity REITs TR = U.S. REITs
S&P 500 Index = U.S. Large Cap
Russell 1000 Growth TR = U.S. Large Growth
Russell 1000 Value TR = U.S. Large Value
Russell 2000 Index = U.S. Small Cap
MSCI EAFE ND USD = Developed International Equities
BC High Yield Corp Bond = High Yield Bonds
BBgBarc Municipal TR = Municipal Bonds; BBgBarc
US Credit TR = U.S. IG Corp Bonds
BC Aggregate Bond = U.S. Taxable Bonds
Barclays Treasury TR = U.S. Treasury Bonds
MSCI Emerging Markets ND USD = Emerging Markets Equities;
JPM GBI EM Glbl Divers TR = EM Bonds;
Bloomberg Commodity TR USD = Broad Basket Commodities
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