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May 2021 - Market Flash

Most global equity and fixed income markets ended May in positive territory, despite investors wrestling with concerns over inflation. More precisely, the question on the minds of many was, and continues to be, whether or not the recent spike in consumer prices will be transitory (as the Fed predicts) or a longer-term trend. This resulted in a choppy month of trading for U.S. large cap stocks, which ended the month higher by 70 bps. International equities fared somewhat better, as improving growth expectations and a weaker dollar pushed developed non-U.S. stock prices higher by 3.59%.

Fixed income markets experienced a somewhat benign month of performance, despite the combination of equity market and interest rate volatility. This resulted in returns of just about 30 bps for investment grade taxable, U.S. high yield, and municipal bonds, alike. However, similar to equity markets, non-U.S. bonds led their domestic counterparts in fixed income space as well, with emerging markets local bonds gaining 2.27% in U.S. dollar terms.


Investor concerns over inflation and higher interest rates manifested themselves in the sector performance dispersion that we witnessed last month. Those sectors poised to benefit most from higher commodities prices and interest rates saw strong gains (e.g., energy, materials, and financials), while those most negatively impacted (e.g., consumer discretionary and technology) experienced losses during the month. With many of these beneficiaries being companies in your traditional value sectors, both large and small value stocks outpaced growth by a relatively wide margin, +3.71% and +5.97%, respectively.

Non-U.S. developed and emerging markets stocks also benefitted from inflationary concerns in the U.S., which helped drive the dollar lower by more than 80 bps versus both the EAFE and emerging markets baskets of currencies. This resulted in a total return of 1.15% for the MSCI Emerging Markets index and gains of 3.59% for the MSCI EAFE, where local currency returns benefitted from optimism over future growth prospects in Europe.

Fixed Income

Fixed income markets were relatively quiet in May, despite the yield on the 10-year treasury rising by as much as 13 bps intra-month. This spike in rates was short-lived, however, as yields ended May essentially flat, providing fixed income investors with a performance tailwind to close out the month. This resulted in a monthly return of 33 bps for the Barclays Aggregate Bond index, which remains lower by -2.29% on a YTD basis.

Outside of the U.S., emerging markets local bonds fared much better than their U.S. counterparts, benefitting from strong non-U.S. equity performance and a weaker dollar. This led to monthly gains of 2.27% and further closes the gap between YTD returns for EM local and U.S. investment grade bonds, which stood at just 11 bps at month end, -2.40% vs. -2.29%, respectively.

Real Assets

Investors who have opted to include commodities as a part of their investment portfolios have been handsomely rewarded thus far in 2021, as the broad-basket index is now higher by nearly 19% on a YTD basis, following a 2.73% gain in the month of May. Commodities prices have benefitted broadly from the reopening trade, as demand has not only increased, but supply chain and production issues still related to COVID-19 have put pressure on the supply side of the equation. This has resulted in sizable gains for nearly all areas of the commodities market, with precious metals being the lone exception. Gold, which has been the index’s primary laggard, remains flat for the year, as higher interest rates have made U.S. treasuries relatively more attractive than they were earlier in the year.

Closed End Funds

Closed end funds had another strong month in May, with industry-wide discounts declining by roughly 100 bps. While CEFs benefitted on the whole, discounts saw the most significant declines within the municipal space, where strong returns out of high yield municipals boosted the asset class. Our Tactical Income Closed End (TICE) strategy experienced excess performance relative to its blended index that was generally in-line with the discount narrowing of the industry, gaining 1.73% vs. 0.70% for the index. TICE is now higher by just over 10% on a YTD basis, which outpaces its blended index by over 600 bps, and compares very favorably to the 12.62% return of the S&P 500.

Important Disclosures

Monthly “Market Flash” 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.

Strategy performance results are net of fund expenses, gross of advisory fees and other expenses that would be incurred in the management of client accounts, such as commissions, transaction fees, and/or custodial charges, and reflect the reinvestment of dividends and capital gains. The client’s return will be reduced by the advisory fees Integrated Capital Management, Inc. charges for the management of an account. Individual account performance and investment management fees incurred by clients may vary as fees for smaller accounts are higher on a percentage basis than for larger accounts. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. For additional information regarding advisory fees, please review Integrated Capital Management, Inc.'s Form ADV Part 2A.

TICE Blended Index comprised of 32% S&P 500/8% MSCI EAFE/38% Barclays Aggregate Bond/20% Barclays Municipal Bond/2% Cash