Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

Equity, Fixed Income Indices Fall; Commodities a Rare Bright Spot

Equity, Fixed Income Indices Fall; Commodities a Rare Bright Spot
clock
3 min 39 sec
Highlights from the Global Markets in 1Q22

U.S. Equity: The S&P 500 Index fell 4.6% for the quarter, but it was down more than 12% early in March before staging a rally into quarter-end. Value stocks sharply outpaced growth across capitalizations, with the spread exceeding 10% in both mid and small caps and just over 8% in large caps.

Not surprisingly, Energy (+39%) was the best-performing sector given a 33% spike in WTI crude oil prices. The defensive Utilities sector (+5%) also posted a positive result. Communication Services (-12%), Consumer Discretionary (-9%), and Information Technology (-8%) were the worst-performing sectors.

Small cap stocks (Russell 2000: -7.5%) underperformed large (Russell 1000: -5.1%).

Global ex-U.S. Equity: The MSCI ACWI ex-USA Index fell 5.4% for the quarter but saw mixed performance from its constituents. Norway (+10%), Australia (+7%), and Canada (+5%) were helped by soaring commodity prices while Japan (-7%) and Europe ex-U.K. (-10%) posted sharp declines. Europe was hit hard by the war in Ukraine, which led to higher energy prices and worries over the impact on its economic recovery. Japan suffered from higher import costs as a result of surging energy prices.

As in the U.S., value outperformed growth by a wide margin (EAFE Value: +0.3%; EAFE Growth: -11.9%) and small cap (EAFE Small Cap: -8.5%) also underperformed. The yen (-5%), euro (-2%), and pound (-3%) weakened vs. the U.S. dollar.

Emerging Markets: The MSCI Emerging Markets Index fell 7.0% for the quarter but results were mixed across regions. Latin America (+27%) fared well on the back of rising oil prices while Emerging Europe (-71%) plunged, reflecting Russia’s -100% return before it was removed from the Index. As in developed markets, value outperformed growth (EM Value: -3.4%; EM Growth: -10.3%).

From a country perspective, China (-14%) fell for the third consecutive quarter, hurt by the spread of COVID, regulatory crackdowns, and a broad economic slowdown. Brazil (+36%), South Africa (+20%), and Saudi Arabia (+17%) were top performers on rising commodity prices. India (-2%), which is a large importer of oil, was hurt by rising energy prices.

U.S. Fixed: The Bloomberg US Aggregate Bond Index sank 5.9% over the quarter, the third-worst quarter since the index’s inception in 1976 (the other two being in 1980). Rates rose sharply on worries over inflation and expectations for Fed rate hikes. The 10-year U.S. Treasury closed the quarter at 2.32%, up from 1.52% at year-end. Notably, the yield curve flattened meaningfully and as of quarter-end the relationship between the 5-year yield (2.42%) and the 10-year yield (2.32%) was inverted. Against this backdrop, TIPS (Bloomberg TIPS: -3.0%) did relatively well as inflation expectations rose.

High yield corporates (Bloomberg High Yield: -4.8%) outperformed investment grade corporates given less sensitivity to interest rates, and bank loans (S&P LSTA Leveraged Loan: -0.1%) were helped by their floating rate coupons and low duration.

Global ex-U.S. Fixed: Rates rose across most developed markets and led to broad-based negative returns. The U.S. dollar strengthened vs. most developed market currencies. The Bloomberg Global Aggregate ex-US Bond Index fell 6.1% unhedged and 4.1% hedged.

Emerging Market Debt: The U.S. dollar-denominated JPM EMBI Global Diversified Index fell 10.0% over the quarter as rates in the U.S. rose. Latin America (-6%) and Africa (-4%) were among the better-performing regions as commodity prices soared. The local currency-denominated JPM GBI-EM Global Diversified fell 6.5%, helped in relative terms by currency appreciation from commodity exporters (Latin America: +7%; Middle East/Africa: +8%). Emerging Europe (-32%) reflected Russia’s removal at $0 (-100%).

Municipals: The Bloomberg Municipal Bond Index fell 6.2%, its worst quarter since 1981, as yields rose sharply. Lower-quality bonds underperformed for the quarter, and the municipal bond yield curve flattened. Supply was down vs. 2021, but heavy outflows put further pressure on the sector. Overall, credit quality remained stable to improving as tax revenues rose. Illinois and New Jersey were upgraded during the quarter.

Real Assets: Commodities were a rare bright spot given their inflation-protection properties as well as war-induced supply concerns. The Bloomberg Commodity TR Index soared 25.5% and the energy-heavy S&P GSCI climbed 33.1%. Gold (S&P Gold Spot Price Index: +6.9%) and listed infrastructure (DJB Global Infrastructure: +3.2%) outperformed global stocks and bonds. TIPS (Bloomberg TIPS: -3.0%) fell but outpaced nominal U.S. Treasuries as inflation expectations rose.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Defined Benefit

Alignment of Interests: Best Practices to Make Sure Investors and Their Managers Are in Sync

Jan Mende
Jan Mende discusses how institutional investors can make sure their interests are aligned with their private markets investment managers.
Defined Benefit

Investing in Data Centers: The Real Assets of the Digital Age

Lauren Sertich
Lauren Sertich provides a summary of her recent paper on investing in data centers.
Defined Benefit

Rising Interest Rates Spur Look at Structured Credit

Nathan Wong
Nathan Wong explains the potential appeal of structured credit in a rising rate environment.
Defined Benefit

Hedge Fund Strategies: A Guide for Institutional Investors

Joe McGuane
Joe McGuane describes the key attributes of hedge funds and how institutional investors should evaluate them.
Defined Benefit

SEC Proposes Rule to Enhance ESG Disclosures for Investments for Funds and Advisers

Kristin Bradbury
The proposal is designed to help investors assess the degree to which ESG considerations are a part of a strategy.
Defined Benefit

Where Do Private Equity Investors Go From Here?

Gary Robertson
Gary Robertson analyzes private equity activity through all the stages of the investment cycle, from fundraising to exits and returns.
Defined Benefit

Unprecedented Territory—and the Inherent Limits of Diversification

Jay Kloepfer
Jay Kloepfer discusses the concurrent declines in the equities and fixed income markets at the beginning of 2022.
Defined Benefit

Geopolitical Upheaval and Unsettled Markets

Jay Kloepfer
Jay Kloepfer analyzes the U.S. and global economies at the start of the year amid geopolitical upheaval and market volatility.
Defined Benefit

Private Credit Appeals to Investors in a Low-Yield Environment

Catherine Beard
Catherine Beard analyzes private credit trends for 2021 and the start of 2022.
Defined Benefit

Market Volatility Tests Hedge Fund Managers

Joe McGuane
Joe McGuane analyzes hedge fund and MAC performance in 1Q22 amid the volatile market environment.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.