QTD & YTD Asset Performance Review

By admin_45 in Blog

For today’s “Data” section we have a performance review of global equities, looking at both their Q4-to-date returns as well as how they’ve fared so far this year. All data here is dollar-based and reflects only price returns (i.e., ex-dividends).

We’ll do this in three sections, to chop up the discussion into manageable chunks, with some lines bolded for emphasis:

#1: Let’s start with global/major regional indices (Q4-to-date, year-to-date):

• MSCI All-World: +3.0 percent, +13.4 percent
• MSCI All-World Ex-US: -1.3 pct, +3.1 pct

• S&P 500: +6.0 percent, +21.6 percent
• Russell 2000: -0.2 pct, +11.4 pct

• MSCI EAFE (non-US developed economies) Index: -1.5 percent, +5.3 percent
• MSCI Europe: +0.1 pct, +9.4 pct
• MSCI Emerging Markets: -3.1 pct, -5.5 pct

Comment: Q4 2021 continues the trend of the S&P 500 soundly beating every other market cap (Russell 2000) and major geographic region (EAFE, EM). This was also true for just the month of November: the S&P 500 was down 0.8 percent, but the Russell 2000 down 4.3 pct, EAFE down 4.5 pct, and Emerging Markets down 4.1 pct.

Also worth noting: look at the difference in global equity returns with and without US stocks in the first 2 lines above, because the most important global equity allocation decision this year has been “how much will I over- or under-weight US equities?”

We continue to strongly prefer the S&P 500 over US small caps and non-US stocks. Even in the current uncertain investment environment, we know we want to be long US Big Tech for their strong business models and investments in future growth. The S&P has them in size; no other index on the list above has them at all.

#2: Moving on to non-US country specific returns (Q4-to-date, year-to-date):

Developed Economies

• MSCI Japan: -5.6 percent, -1.8 percent
• MSCI United Kingdom: -0.7 pct, +9.4 pct
• MSCI Germany: -3.4 pct, +0.1 pct
• MSCI France: +1.5 pct, +13.6 pct
• MSCI Italy: -0.6 pct, +6.9 pct
• MSCI Switzerland: +6.0 pct, +10.5 pct

Comment: non-US developed economies equity markets are tacking on lackluster Q4 performances on to an already lackluster year. Even those that have positive QTD returns (France, Switzerland) are only up 10-14 pct YTD. If you are wondering why France is doing so well, chalk it up to one stock – LVMH – which is up 35 percent YTD and is just over 10 pct of the index.

Our one non-US developed economy equity pick is the UK (ETF symbol EWU). It has a reasonable balance of defensive sectors (Staples 20 pct) and cyclical ones (Financials: 17 pct, Energy 11 pct). Its dividend yield (2.8 pct) is also a plus.

Emerging Markets (Q4-to-date, year-to-date)

• MSCI China: -3.4 percent, -19.5 percent
• MSCI South Korea: -6.1 pct, -12.0 pct
• MSCI Taiwan: +4.3 pct, +21.9 pct
• MSCI India: -2.4 pct, +18.2 pct

Comment: Chinese equities have had an epically bad year and Q4 is not coming to the rescue. The other major EM economies are, collectively, doing better with an average YTD return of 9 percent and some give and take between them in Q4.

Our stance on EM remains essentially “anything but Chinese equities”, simply due to the country’s ongoing regulatory crackdown. There will be a time to buy this country’s stocks, to be sure. It’s just too early to consider that now in our view.

#3: Finally, let’s look at US large cap sector performance (ranked in order of Q4-to-date performance):

Outperformers Q4 QTD

• Consumer Discretionary: +13.9 percent, +27.2 percent
• Technology: +13.0 pct, +29.8 pct
• Materials: +7.0 pct, +16.9 pct
• Real Estate: +6.6 pct, +29.6 pct

Underperformers Q4 QTD

• Energy: +4.8 pct, +44.0 pct
• Industrials: +3.0 pct, +13.8 pct
• Utilities: +3.0 pct, +4.9 pct
• Consumer Staples: +2.1 pct, +4.2 pct
• Health Care: +1.9 pct, +14.4 pct
• Financials: +1.1 pct, +28.8 pct
• Comm Services: -5.9 pct, +11.7 pct

Comment: it is not fair to say “Tech” or “Consumer Discretionary” are leading the S&P 500 this quarter, because the real leadership has been NVIDIA (+58 pct QTD), Microsoft (+17 pct QTD), Apple (+17 pct QTD) and Tesla (+48 pct QTD). The first three are 51 percent of the large cap Tech sector. The last one is 20 percent of Consumer Discretionary. Their performance explains the bulk of the QTD gains in Discretionary and Tech.

Our picks remain Energy and Financials for cyclical exposure and Health Care on the defensive side. We do not ever recommend underweighting the Tech sector or Tech-adjacent names like Tesla because of exactly what’s happened in Q4-to-date; when they go, they go quickly. We do recommend underweighting Consumer Staples and Utilities.