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August 21st, 2018
By Scott Treacy, CFA
The lackluster returns for US fixed income have continued through the first half of 2018. The US Federal Reserve has raised the fed funds rate twice already this year by 25 basis points each time; this has proved challenging for bond investors in the short-term.
Asset managers in the US broad core and core plus peer groups have been able to outperform their benchmark, the Bloomberg Barclay’s US Aggregate Index, yet, overall returns are modest. In prior quarters US corporate bonds were able to provide better returns for investors, however, in the past two quarters, this sector has struggled. Fortunately, asset managers were able to provide some active returns during this period.
Additionally, the higher yielding fixed income sectors have struggled year-to-date. The combination of a strengthening US dollar and a protectionist stance by the US on global trade has led to poor performance in the emerging markets debt sector over the past six months. The Investment Metrics emerging markets debt peer group has not been able to mitigate these poor returns. With expectations that the Federal Reserve will continue to raise the fed funds rate through this year and into next year, performance could continue to struggle from this asset class.
The Investment Metrics equity peer groups have not performed well in the near-term against their respective benchmarks. US equity, across the market capitalization spectrum, continues to perform favorably compared to other geographic investment areas.
Unfortunately, US equity asset managers have struggled to outperform their indices. Within US large-cap equity asset managers underperformed the S&P 500 in all four periods reviewed. Similarly, global large-cap equity asset managers underperformed the MSCI World Index in all four periods. The best performing area for asset managers was in international small-cap equity, viewed by many investors as an inefficient market where managers can provide active returns.
Finally, similar to emerging markets debt, emerging market equities have struggled in the near-term; due to a strengthening US dollar against emerging market currencies, as well as the threat of a global trade war that would especially hurt emerging economies.
InvestWorks is an asset manager research web platform with 1,800 firms, 36,033 products, and 357 peer groups. The data within InvestWorks is provided by asset managers who submit their product information to the Investment Metrics global database of traditional and alternative strategies.
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