Q1 Market Update - AssetMark

First Quarter 2019

Market Review Q1 2019

Zoë Brunson, CFA

Senior Vice President, Investment Strategies

AssetMark, Inc.

What a difference a quarter makes. Markets reversed course and ‘settled up’ as risk assets led the way. Global equities returned 12.3% (MSCI ACWI) for the quarter while global bonds returned 2.2% (Bloomberg Barclays Global Aggregate). Global REITs outperformed global equities and returned 14.3% (Dow Jones Global Select REIT) for the quarter.
Within equities, US markets led the way with a return of 13.5% (S&P 500), outperforming international developed markets and emerging markets which returned 10.1% (MSCI EAFE) and 10.0% (MSCI Emerging Markets) respectively.
The US markets had their best start to the year for over 20 years as growth factors outperformed led by technology which was the best performing sector for the quarter at 19.9% (S&P 500 Sector Information Technology). Healthcare saw the weakest return at 6.6% (S&P 500 Sector Healthcare), having been the market leader in 2018. Concerns from the upcoming primary season along with mean reversion were likely drivers of the weakness seen in Healthcare.
Internationally, only two markets saw a negative return in local currency terms – Qatar and Malaysia¹. Similar to US equities, this helped the global equity index to its best start in over 20 years. Asia was the strongest region, being lifted by China which returned 17.7% (MSCI China).
Bond sectors saw big reversals with the sudden fall in rates in March following the shift in the Federal Reserve outlook to a dovish stance. The 10-year Treasury yield started March at 2.76%² and fell to 2.41%³ by end the quarter.
Long term bonds rallied at the end of the quarter with the fall in rates with long-term Treasuries (Bloomberg Barclays US Treasury Long) outperforming short-term Treasuries (Bloomberg Barclays US Treasury 1-3 Year) by over 350 basis points, a reversal of the 320 basis points outperformance seen by short-term Treasuries in 2018.
Risk assets rallied in the bond market with high yield leading the way with a return of 7.3% (Bloomberg Barclays US Corporate High Yield) for the quarter. Agencies went from being the best performing sector in 2018 to the weakest sector year to date with a return of 1.8% (Bloomberg Barclays US Agency).
Emerging market bonds were the best performers in aggregate regionally, seeing a return of 5.4% (Bloomberg Barclays Emerging Markets USD Aggregate) for the quarter while international developed bonds returned 1.5% (Bloomberg Barclays Global Aggregate ex USD), which was impacted by currency moves as the hedged international developed bond index returned 3.0% (Bloomberg Barclays Global Aggregate ex USD Hedged) for the quarter.

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¹ Source: Ned Davis Research
² U.S. Department of Treasury
³ Ibid

Index	Description
Bloomberg Barclays Emerging Markets USD Aggregate	The index is a flagship hard currency Emergency Markets debt benchmark that includes fixed and floating-rate US dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers. Country eligibility and classification as Emerging Markets is rules-based and reviewed annually using World Bank income group and International Monetary Fund (IMF) country classification.
Bloomberg Barclays Global Aggregate	The index is a measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The index also includes Eurodollar, Euro-Yen, and 144A Index-eligible securities, and debt from five local currency markets not tracked by the regional aggregate benchmarks (CLP, MXN, ZAR, ILS and TRY).
Bloomberg Barclays Global Aggregate ex USD	The index is a measure of global investment grade debt from twenty-three local currency markets. This multi-currency benchmark includes government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The index also includes Eurodollar, Euro-Yen, and 144A Index-eligible securities, and debt from five local currency markets not tracked by the regional aggregate benchmarks (CLP, MXN, ZAR, ILS and TRY).
Bloomberg Barclays Global Aggregate ex USD Hedged	The index is a measure of global investment grade debt from twenty-three local currency markets. This multi-currency benchmark includes government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The index also includes Eurodollar, Euro-Yen, and 144A Index-eligible securities, and debt from five local currency markets not tracked by the regional aggregate benchmarks (CLP, MXN, ZAR, ILS and TRY) hedged against the USD.
Bloomberg Barclays US Agency	Measures the performance of the agency sector of the US government bond market and is compromised of investment-grade native currency US Dollar-denominated debentures issued by government and government-related agencies, including the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). The index includes both callable and non-callable agency securities that are publicly-issued by US Government agencies, quasi-federal corporations, and corporate and foreign debt guaranteed by the US government.
Bloomberg Barclays US Corporate High Yield	The index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes emerging market debt.
Bloomberg Barclays US Treasury 1-3 Year	The index measures the performance of short-term government bonds issued by the U.S. Treasury. It includes all publicly issued, U.S. Treasury securities that have a remaining maturity of between 1 and 3 years, are non-convertible, are denominated in U.S. dollars, are rated investment grade, are fixed rate, and have $250 million or more of outstanding face value.
Bloomberg Barclays US Treasury Long	The index measures the performance of long-term government bonds issued by the U.S. Treasury. It includes all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are non-convertible, are denominated in U.S. dollars, are rated investment grade, are fixed rate, and have $250 million or more of outstanding face value.
Dow Jones Global Select REIT	A broad measure of the performance of publicly traded International real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies.
MSCI ACWI	A free float-adjusted capitalization weighted index that is designed to measure the equity performance of countries considered to represent both developed and emerging markets.
MSCI China	The MSCI China Index captures large and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 152 constituents, the index covers about 85% of this China equity universe.
MSCI EAFE	A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of countries considered to represent developed markets, excluding the U.S. and Canada.
MSCI Emerging Markets	A free float-adjusted market capitalization index that is designed to measure the equity market performance of countries considered to represent emerging markets.
S&P 500	A cap-weighted index that is generally considered representative of the U.S. equity market, consisting of 500 leading companies in leading industries of the U.S. Market capitalizations are generally above $5 billion representing approximately 80% of available market capitalization.
S&P 500 Sector Healthcare	The index is primarily comprised of companies involved in health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries.
S&P 500 Sector Information Technology	The index is primarily composed of companies involved in technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components.

C33526 | 4/2019 | EXP 07/31/2020
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