Thursday, April 2, 2015
1st Quarter Review
Looking at developed markets, the clear winner in the first quarter was Europe along with the Shanghai index. However, if you weren't currency hedged you dramatically underperformed domestic investors because of the weakness in the Euro during the quarter. A great illustration is to compare the US listed German ETF (EWG) versus the iShares Currency hedged MSCI German Index (HEWG). You can see how the hedged index rose at a much faster rate than the un-hedged EWG.
Meanwhile, US index's were laggards as they finished flat to slightly positive. Digging deeper, strength was seen in smaller caps while growth outpaced value.
From a sector standpoint the winners vs. laggards was striking. Strength was seen all quarter in healthcare while utilities were a constant drag. The weakness in utilities continues the interest rate theme and shows how the threat of higher rates can impact the market. Healthcare continues to benefit from the enormous rise in biotech valuations and activity.
From a macro asset class standpoint, the dollar stood out among all the winners. Another interesting story was that given all the persistent worry about rising interest rates, bonds prices continued to hold firm as yields have fallen since year end. If you guessed the biggest loser was the Euro considering the dollar strength you would be almost right. It was the 2nd most significant loser we follow behind oil. The ratio chart below comparing the dollar to oil shows a heck of a story. Starting last summer these two asset classes have moved in near perfect opposition.
The emergence of Europe as a leader in Q1 was a direct correlation to the fresh round of quantitative easing they've recently embarked on. Considering the US's history of QE and how it positively moved asset classes, this could have a prolonged affect on European risk assets.
Here's a look at where some of the more widely followed benchmarks and ETFs stood at quarter end.
Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.
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