- Developed-market equities were mixed for the period, while their emerging-market counterparts sank on deep losses from China and Brazil.
- We believe that analysts are still underestimating the earnings strength of publicly traded companies, which remains robust around the world. This could allow for upward revisions in earnings estimates—assuming that the renormalization of global economic growth gets back on track, as we suspect it will.
The global equity rally staged a modest retreat for the third quarter, with challenges accumulating as the clock ticked toward the final hours of September, flipping performance from positive to negative in most regions. Developed-market equities were mixed for the period but generally remained quite strong in the year to date; Japan was a rare bright spot among major markets during the quarter. Meanwhile, China and Brazil registered deep losses for the three-month period that sank emerging-market equity returns for the quarter, which tipped returns negative for the year to date.
Across the U.S., U.K. and eurozone, government bond rates generally increased for the full three-month period. After declining across the yield curve in July, rates rose in August and accelerated their climb in September. Inflation-protected securities were the top-performing segment of fixed-income markets during the quarter; high yield followed, while emerging-market debt and global sovereigns had the steepest losses.
Crude-oil prices moved lower during the first half of the quarter but then reversed to end the period higher. OPEC+ (the Organization of the Petroleum Exporting Countries led by Saudi Arabia, plus Russia) decided at the beginning of October to maintain (rather than accelerate) the monthly increase in production of 400,000 barrels per day, which sent the price of West Texas Intermediate crude oil to its highest level since 2014.
The Delta wave of new COVID-19 cases drove U.S. infection and hospitalization counts to a peak at the beginning of September, just two weeks ahead of the country’s mid-September top in daily deaths. U.K. cases peaked during mid-July, and had a smaller resurgence in early September. Both episodes roughly coincided with high points in the hospitalization rate, while the number of daily deaths crested along with the early September infections surge.
Regions that were at or near all-time high infection rates included Northern South America and the Lesser Antilles of the Caribbean; Eastern Europe; Australia; and pockets within Sub-Saharan Africa and Asia-Pacific.
Countries with the highest percent of their populations having received at least one dose of the COVID-19 vaccine through the end of the third quarter were the United Arab Emirates (95%), Portugal (86%), Cuba (83%) and Singapore (82%), while Canada (78%), the U.K. (73%) and U.S. (65%) lagged. Cuba’s vaccination pace led the world as of September 30, administering more than 2,000 daily doses per 100,000 people.
The People’s Republic of China (PROC) had an outsized sway over capital markets during the third quarter. President Xi Jinping’s “Common Prosperity” campaign accelerated in July with a number of regulatory steps to rein in e-commerce companies and for-profit schools. Evergrande, one of China’s largest real estate developers, also faced a pivotal turning point in July when several banks began denying mortgages on its backlog of unfinished projects. The late-September selloff in stocks around the globe exacerbated concerns about the extent of potential fallout effects if the company defaulted on its roughly $300 billion in debt.
Germany’s center-left Social Democrats (SPD)—led by current vice chancellor and finance minister Olaf Scholz—earned the greatest share of votes in the country’s September election, edging out its coalition partner CDU/CSU. A coalition with SPD at its head will likely form this fall, leaving Chancellor Angel Merkel to remain at the top of a caretaker government in the interim.
In the U.S., a razor-thin majority that President Joe Biden’s Democrats have enjoyed in the Congress has created an evolving array of challenges during the quarter. The progressive and moderate wings of his party debated through the end of September over the size and scope of legislation necessary to fund an infrastructure plan, the overall federal budget, and an increase in the U.S. government’s debt ceiling (that is, the total borrowing limit). Secretary of the Treasury Janet Yellen had warned that the debt ceiling would need to be increased by mid-October in order to avoid a government shutdown.
- Growth in the U.S. manufacturing sector moderated during most of the third quarter, yet strengthened somewhat in September.
- The services sector remained healthy but unremarkable for the third quarter as growth continued to slow from the record-fast pace registered in May.
- New weekly U.S. jobless claims essentially finished the third quarter where they started—between 360,000 and 375,000 filings per week—after ranging widely throughout the period from 310,000 to 420,000 claims per week.
- The U.S. economy expanded at a 6.7% annual rate during the second quarter, up from 6.3% during the first quarter.
- The fever pitch of U.K. manufacturing activity that defined conditions heading into July steadily declined over the course of the third quarter, leaving manufacturing growth at strong, perhaps more sustainable-levels in September.
- Services-sector growth also slowed from multi-decade highs, but at an even faster pace, settling at moderately healthy levels toward the end of the quarter.
- The U.K. claimant count (which calculates the number of people claiming Jobseeker’s Allowance) continued to decline during the third quarter, by roughly 107,000 between June and August, with claimants representing 5.4% of the population as of August’s reading.
- The U.K. economy expanded by 5.5% during the second quarter and 23.6% year over year after contracting by 1.4% during the first quarter.
- Eurozone manufacturing conditions followed a path similar to the UK’s during the third quarter, but growth remained slightly stronger than the U.K. throughout the period after setting an all-time high in June.
- Services growth continued to strengthen through July, but softened notably during September.
- The eurozone unemployment rate’s decline persisted throughout the third quarter, sliding from 7.7% in June to 7.6% in July, and to 7.5% in August.
- The overall eurozone economy grew by 2.2% during the second quarter and 14.3% year over year after contracting by 0.3% during the first quarter.
- Over the course of the third quarter, the Federal Open Market Committee (FOMC) moved incrementally closer to declaring a start date for tapering (reducing) asset purchases. Its late-September statement said, “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” The FOMC currently purchases $80 billion in Treasurys and $40 billion in agency mortgage-backed securities per month; Federal Reserve (Fed) Chairman Jerome Powell indicated that the tapering timeline could be determined at the November FOMC meeting. The central bank noted in its latest quarterly Summary of Economic Projections that the projected timing of the next fed-funds interest-rate hike has moved up to 2022 from 2023 (as projected in June).
- The Bank of England’s (BOE) Monetary Policy Committee (MPC) voted twice during the second quarter to maintain its policy path; the bank rate remained 0.1% and the maximum allowance for asset purchases was unchanged at £895 billion. Elevated inflation pressures provoked the BOE to acknowledge in its September Monetary Policy Summary that modest policy tightening may eventually be warranted.
- The European Central Bank (ECB) began the third quarter adopting a symmetric inflation target of 2% over the medium-term (meaning that it views deviations above or below its target as undesirable) and acknowledging that it anticipates greater fluctuations over shorter time frames. After reaffirming in July that purchases under the pandemic emergency purchase programme (PEPP) would be conducted at a significantly higher pace than during the first months of the year (approximately €80 billion per month compared to €60 billion), ECB President Christine Lagarde stated in September that the eurozone’s economic rebound and higher inflation would enable “a moderately lower pace of net asset purchases.”
- The Bank of Japan (BOJ) maintained its monetary-policy path throughout the third quarter, with its short-term interest rate at -0.1% and 10-year government bond yield target near 0%; it also continued open-ended asset purchases. The central bank’s green lending program came into focus: starting in December, 0% interest-rate loans will be made available to banks for lending that supports efforts to counteract climate change. Banks will be able to roll these loans forward until 2030.
U.S. large-cap stocks were essentially flat for the full third quarter, while small caps declined. Our U.S. large-cap strategies1 lagged their benchmarks for the period, held back by an underweight to information technology and positioning in consumer discretionary. An overweight to financials and selection in energy partially offset the detractors. Our U.S. small-cap strategies outperformed their benchmarks due to quality and value exposures. From a sector perspective, top contributors included an underweight to biotechnology stocks and selection in health care, industrials and information technology; an overweight to consumer discretionary detracted. Overseas, our international developed-market strategy lagged the benchmark due to bottom-up challenges in consumer discretionary and headwinds to semiconductor and technology hardware exposures. Value-oriented exposures in financials contributed, particularly banks and insurance companies. Emerging-market equities were hit hard during the quarter, and our strategy performed in line with the benchmark. Detractors included quality-oriented exposures in materials and overall positioning in financials; underweighting China and Brazil contributed.
Non-government fixed-income sectors had mixed performance relative to comparable U.S. Treasurys during the third quarter; our core fixed-income strategy essentially matched its benchmark. Yield-curve positioning (driven by an overweight to the long end) was additive. An overweight to corporates (concentrated in financials) detracted, while selection in financials and industrials was beneficial (particularly banks, consumer non-cyclicals and energy). Asset-backed securities (ABS) performed modestly well, benefitting our overweight, with student loans (our largest allocation within ABS) and exposure to higher quality securitizations serving as solid contributors. Commercial mortgage-backed securities (CMBS) exposure was also beneficial, particularly within higher-quality tranches. An underweight to agency mortgage-backed securities (MBS) contributed early in the quarter when spreads were widening; later in the quarter, a reduction in the underweight was also favorable as agency MBS gained in September. Our high-yield strategy outpaced its benchmark during the quarter. An allocation to collateralized loan obligations (CLOs) was the top contributor, followed by positioning in health care and basic industry. Positioning in banking, automotive and telecommunications detracted the most. Our emerging-market debt strategy performed in line with its benchmark during a challenging period for the asset class. At a high level, selection within corporates was the top contributor, while an overweight to local-currency debt and an underweight to hard-currency debt detracted. Geographically, an overweight to Zambia and an underweight to Thailand added the most, and overweights to Mexico and Korea detracted.
Manager Positioning and Opportunities
The biggest active positions in our large-cap strategies were an overweight to financials (attractive valuations in an improving economy) and an underweight to information technology (expensive valuations). Our U.S. small-cap strategies retained a large underweight to health care (concentrated in biotechnology stocks) and an underweight to real estate, and decreased a still-sizeable overweight to consumer discretionary. Our international developed-market equity strategy continued to overweight technology- and consumer-oriented growth themes. We maintained underweights to defensive sectors like utilities and real estate, which had limited growth opportunities and elevated valuations. We also reduced exposure to insurance and banks. Our emerging-market equity strategy retained overweights to information technology and materials as well as select high-quality insurers and banks on promising growth expectations. It had underweights to communication services and consumer discretionary due to expensive valuations on internet-related names, and to health care for company-specific reasons.
With long-term yields still near historically low levels, our core fixed-income strategy continued to gradually adjust its yield curve posture—reducing an overweight to the 25-to-30-year segment of the yield curve and increasing exposure to the 5-to-10-year segment. Our corporate overweight—primarily within financials, and to a lesser degree in energy and industrials—continued to gradually decrease as it has over the last 17 months with spreads narrowing. Overweights to ABS and CMBS remained given their attractive risk-adjusted yields, with an emphasis on higher-quality holdings. We maintained an allocation to non-agency MBS and moved from an underweight back to a neutral position in agency MBS. Our high-yield strategy’s largest position remained an allocation to CLOs, which we believe remain especially attractive given the high yields on lower-rated debt and equity tranches. Our largest underweights were within telecommunications and leisure; our most significant change during the quarter was a decrease in our underweight to media, followed by increased underweights to services and leisure. Our emerging-markets debt strategy retained an overweight to local-currency assets and an underweight to hard-currency debt. At the country level, our largest active positions were an underweight to China and an overweight to Mexico; our most significant third-quarter changes were an increased overweight to Singapore and a decreased overweight to Korea.
In a natural reaction to the prospect of more lockdowns and delayed returns to normal life given the surge in COVID-19 infections that began this past May, investors revisited stocks that benefited the most during 2020—namely the work-at-home, big technology companies and other large-cap stocks that do well when interest rates fall (lower interest rates make future cash flows of these types of stocks more attractive). However, the subsequent bounce-back in growth- and momentum-oriented large-cap stocks at the expense of value and cyclical stocks has already shown signs of deteriorating as rates spiked at the end of the third quarter.
We expect economic growth—in the U.S. and globally—to continue over the next year or two at a pace that meaningfully exceeds the sluggishness of the years that followed the 2007-to-2009 global financial crisis; the recent gloom about flagging economic growth is likely a bit overdone.
Household wealth is at an all-time high, owing to booming stock and home prices. A big decline in the saving rate has helped cushion the blow to consumer spending; still, saving as a percentage of disposable income remains elevated compared to pre-pandemic levels. We think households generally can adjust to a decline in pandemic relief payments without necessitating a sharp contraction in their expenditures.
The impact of COVID-19 on global supply chains has been a more significant impediment. Vendor deliveries have seldom been as slow in the 74-year history of the Institute for Supply Management’s (ISM) survey as they are now, even with the situation having eased slightly since May. Inventories remain exceedingly low relative to demand.
Input costs have been rising rapidly, but companies have been able to compensate by passing along their increased costs to customers. After-tax corporate margins on an economy-wide basis hit a new all-time high in the second quarter, rising to 14.9% of sales.
Corporate pricing power is the good news. The bad news is that inflation keeps exceeding consensus expectations. We still expect inflation to run at a higher rate for a longer period than has been commonly assumed, not just over the next one or two years, but well into the decade.
Growth in unit labor costs typically plummets when the economy emerges from recession. Now, however, unit labor costs are running near a 2.7% rate—the fastest pace since the peak of the 2002-to-2007 expansion.
While commodity inflation and parts shortages may indeed prove transitory, it isn’t clear whether the labor shortage and resultant pressure on compensation growth will be as quick to revert to lower levels. The tax and regulatory initiatives of the Biden administration will likely add to the cost pressures facing businesses in the years immediately ahead.
Since U.S. demand is expected to remain robust as economic growth normalizes, it would not be surprising to see companies continue passing along their increased costs. Inflation over the long haul could thus be closer to 3% than the 2% or so currently expected by the Fed and most investors.
If that turns out to be the case, the Fed may be forced to raise interest rates higher and faster over the next three years than anticipated.
A concern that is much nearer in timeframe is the fight in Washington over infrastructure spending and the debt limit. We assume President Biden will get about half of what he is seeking, but the devil will be in the details. Investors are probably right not to react too dramatically to every development. The debt-limit drama, however, could elicit a more significant disruption as the deadline for must-pass legislation nears. Although the debt ceiling will be raised, the wrangling over it will almost certainly come down to the wire.
We suggest focusing on longer-term considerations: The latest COVID-19 wave will eventually pass. Economic growth should stay relatively strong in 2022. Households are in solid financial shape and will benefit as employment and wages continue to move higher. Companies are still able to pass along increased costs and maintain high profit margins. Fed policy is still biased toward easing, allowing the economy to run hot at the risk of higher inflation. This should all create a favorable backdrop for risk assets and support a resumption in the coming months of the cyclical/financial/value trend versus growth/technology.
Other developed countries are broadly on the same path as the U.S., and are reacting to the same catalysts.
Purchasing managers’ surveys from recent months show that U.S. economic growth is cooling, yet still strong versus pre-pandemic levels. Activity in Europe, led by Germany, appears to be on the upswing—boosted by a decline in Delta (which has allowed for more travel and tourism in Europe) and an increase in EU fiscal support.
The major outlier is Japan, which has been rather weak so far this year versus its industrial-country peers. Inflation-adjusted GDP fell in the first quarter and posted only a tepid gain in the second quarter. Economists blame COVID-19-related restrictions. The global shortage in the supply of semiconductor chips, meanwhile, has impeded auto production. Citizens nonetheless blamed Prime Minister Yoshihide Suga. In response, he pledged to cede leadership of the Liberal Democratic Party to former foreign minister Fumio Kishida, who is expected to also succeed Suga as prime minister following the November elections.
U.S. inflation may be near a peak, but a further acceleration appears in store for Europe. The immediate concern for households in the region is the cost of energy. Even without energy-production shortages, electricity prices across Europe tend to be much higher than in North America—especially for households, particularly in Germany. The U.K. is in the midst of a petrol crisis due to an inability to make deliveries to gas stations amid a severe truck-driver shortage.
Europe’s energy woes probably won’t cause the region’s governments to deviate from the climate-change agenda they have put in place. The German election underscores this point. Although it will take a couple of months to cobble together a coalition, all political parties are committed to reducing carbon admissions.
Beyond energy, Europe’s reopening should cause the price of services to rise as they have in the U.S., albeit to far less of an extent. The overwhelming assumption is that any pickup in inflation will be short-lived.
China is dominating investor perceptions of emerging markets. The Xi government’s push to enforce “common prosperity” has had far-reaching effects on corporate China. The country’s 20-year boom has exacerbated social inequality. Crackdowns on for-profit tutoring companies, major gig employers, and individuals (notably, Jack Ma) is a brutal but effective way of addressing disparities in wealth and income.
Although some of these moves have hurt foreign equity investors, it’s unclear whether the economy itself will be severely constrained. China is a huge country with tremendous internal capital upon which to draw. Foreign companies probably won’t cut and run, but they will certainly be forced to play by Beijing’s rules if they stay.
We expect diversification of supply chains away from China at the margin, but this has been happening anyway. It is in advanced countries’ interests to be more self-sufficient in producing critical products. But China is too big, too efficient and too important a manufacturer for the world to turn its back on.
China’s economic growth rate should nevertheless slow as a result of the government’s actions. Property development has been the driving force behind its rapid expansion over the past 15 years. Critics of China’s economic model have wondered for years if the bill would ever come due. It might be coming due now.
We are watching the trend in commodity prices for hints that pressure on China’s construction activity is beginning to reverberate beyond its borders. So far, there has been little sign of that occurring. Iron ore prices have plunged, but that appears to have been caused primarily by government-mandated closures of steel plants in an effort to curb pollution.
Even within China itself, investors seem to be taking the Evergrande debacle in stride. The effective yield on the country’s high-yield bonds has been rising sharply since May, but it is nowhere near the 40% yield reached in 2008. It also remains some six percentage points below the high reached in 2011, when the government clamped down on excessive credit growth and rampant speculation in the property and stock markets.
In contrast to high yield, the yield on Chinese investment-grade bonds is currently at its lowest level in the past 20 years—indicating no sign of contagion.
One explanation for the resiliency of the MSCI Emerging Markets Index is the strength of the global economy outside China. The U.S. has been leading the way, but other advanced countries—notably Europe—continue to post improved economic activity.
If history is any guide, however, upside inflation surprises in the G-10 countries suggest that emerging economies will follow suit over the next few months. Unlike advanced countries, where inflation expectations tend to better anchored, central banks in vulnerable emerging economies are forced to raise interest rates sooner than they would prefer in order to dampen inflation pressures and defend their currencies.
Given these concerns, investors might be tempted to avoid emerging-market equities. We believe that would be a mistake. Valuations, particularly relative to the developed world, look especially cheap.
Globally, the earnings of publicly traded companies generally remain robust; we believe that analysts are still underestimating that strength. With the exception of Japan, earnings estimates for 2021 have been raised dramatically versus just six months ago. Forecasts for 2022 earnings have been cut in half from where they were six months ago, but they still are expected to show mid-to-high single-digit gains.
This lowering of the bar for next year could allow for upward revisions in analysts’ earnings estimates—assuming, as we do, that the renormalization of global economic growth gets back on track with wider vaccine distribution and a declining COVID-19 wave.
Glossary of Financial Terms
- Asset-Backed Securities (ABS): ABS are securities created from pools of loans or accounts receivable such as credit cards, auto loans and mortgage loans.
- Bear market: A bear market refers to a market environment in which prices are generally falling (or are expected to fall) and investor confidence is low.
- Bubble: A bubble occurs when excessive speculation leads to a drastic increase in asset prices, leaving them at risk to collapse.
- Bull market: A bull market refers to a market environment in which prices are generally rising (or are expected to rise) and investor confidence is high.
- Cyclical stocks: Cyclical stocks or sectors are those whose performance is closely tied to the economic environment and business cycle. Managers with a pro-cyclical market view tend to favor stocks that are more sensitive to movements in the broad market and therefore tend to have more volatile performance.
- Delta variant: The B.1.617.2 (delta) variant of the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), the virus that causes coronavirus disease 2019 (Covid-19), arose during the sharp surge in cases in India during spring 2021 and has now been detected across the globe, including notable increases in cases in the U.K. and U.S.
- Fiscal policy: Fiscal policy relates to decisions about government revenues and outlays, like taxation and economic stimulus.
- Fiscal stimulus: Fiscal stimulus refers to government spending intended to provide economic support.
- Forward price-to-earnings (PE) ratio: The forward PE ratio is equal to the market capitalization of a stock or index divided by forecasted earnings over the next 12 months. The higher the PE ratio, the more the market is willing to pay for each dollar of annual earnings.
- Gilt: Gilt refers to a sovereign debt instrument issued by the U.K. government.
- Green lending: Green lending refers to the Bank of Japan’s effort to strengthen the lending market for environmentally-friendly projects.
- Hawk: Hawk refers to a central bank policy advisor who has a negative view of inflation and its economic impact and thus tends to favor higher interest rates.
- Inflation-Protected Securities: Inflation-protected securities are typically indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money. The principal value of an inflation-protected security typically rises as inflation rises, while the interest payment varies with the adjusted principal value of the bond. The principal amount is typically protected so that investors do not risk receiving less than the originally invested principal.
- Monetary policy: Monetary policy relates to decisions by central banks to influence the amount of money and credit in the economy by managing the level of benchmark interest rates and the purchase or sale of securities. Central banks typically make policy decisions based on their mandates to target specific levels or ranges for inflation and employment.
- Mortgage-Backed Securities: Mortgage-Backed Securities (MBS) are pools of mortgage loans packaged together and sold to the public. They are usually structured in tranches that vary by risk and expected return.
- NextGenerationEU: NextGenerationEU is an economic recovery fund established by the EU and totaling more than €800 billion projected to be spent between 2021 and 2027. The centerpiece of the programme is a €723.8 billion facility for loans and grants to EU countries for investments.
- OPEC+: OPEC+ combines OPEC—a permanent intergovernmental organization of 13 oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries—with Russia, a major oil exporter, to make collective high-level decisions about oil production levels.
- Pandemic Emergency Purchase Programme (PEPP): PEPP is a temporary asset purchase programme of private and public sector securities established by the ECB to counter the risks to monetary policy transmission and the outlook for the euro area posed by the COVID-19 outbreak.
- Quantitative easing: Quantitative easing refers to expansionary efforts by central banks to help increase the supply of money in the economy.
- Sovereign: A sovereign refers to government-issued debt.
- Summary of Economic Projections: The Fed’s Summary of Economic Projections (SEP) is based on economic projections collected from each member of the Fed Board of Governors and each Fed Bank president on a quarterly basis.
- Taper tantrum: Taper tantrum describes the 2013 surge in U.S. Treasury yields, resulting from the U.S. Federal Reserve’s announcement of future tapering of its policy of quantitative easing.
- Transitory inflation: Transitory inflation refers to a temporary increase in the rate of inflation.
- Treasury Inflation-Protected Securities (TIPS): TIPS are sovereign securities issued by the U.S. Treasury that are indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money. The principal value of TIPS rise as inflation rises, while the interest payment varies with the adjusted principal value of the bond. The principal amount is protected so that investors do not risk receiving less than the originally invested principal.
- Yield: Yield is a general term for the expected return, in percentage or basis points (one basis point is 0.01%), of a fixed-income investment.
- Yield curve: The yield curve represents differences in yields across a range of maturities of bonds of the same issuer or credit rating (likelihood of default). A steeper yield curve represents a greater difference between the yields. A flatter curve indicates the yields are closer together.
Index and Benchmark Descriptions
All indexes are quoted in gross performance unless otherwise indicated.
- The Bloomberg Barclays 1-10 Year US TIPS Index measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of 1 to 10 years.
- The Bloomberg Barclays US Asset Backed Securities (ABS) Index measures the performance of ABS with the following collateral types: credit and charge card, auto and utility loans. All securities have an average life of at least one year.
- The Bloomberg Barclays Global Aggregate Index is an unmanaged market-capitalization-weighted benchmark, tracks the performance of investment-grade fixed-income securities denominated in 13 currencies. The Index reflects reinvestment of all distributions and changes in market prices.
- The Bloomberg Barclays Global Aggregate ex-Treasury Index is an unmanaged market index representative of the total-return performance of ex-Treasury major world bond markets.
- The Bloomberg Barclays Global Treasury Index is composed of those securities included in the Bloomberg Barclays Global Aggregate Bond Index that are Treasury securities.
- The Bloomberg Barclays US Corporate Bond Index is a broad-based benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market.
- The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index measures the performance of investment-grade, fixed-rate, mortgage-backed, pass-through securities of Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC).
- The Bloomberg Barclays US Treasury Index is an unmanaged index composed of U.S. Treasurys.
- The Bloomberg Commodity Index is composed of futures contracts and reflects the returns on a fully collateralized investment in the Index. This combines the returns of the Index with the returns on cash collateral invested in 13-week (3-month) U.S. Treasury bills.
- The Employment Cost Index is a quarterly economic series published by the U.S. Bureau of Labor Statistics that details the growth of total employee compensation. The index tracks movement in the cost of labor, as measured by wages and benefits, at all levels of a company.
- The Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.
- CBOE Volatility Index (VIX Index): The VIX Index tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.
- The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 blue-chip New York Stock Exchange stocks that are selected by editors of The Wall Street Journal.
- The Employment Cost Index is a quarterly economic series published by the U.S. Bureau of Labor Statistics that details the growth of total employee compensation. The index tracks movement in the cost of labor, as measured by wages and benefits, at all levels of a company.
- The FTSE All-Share Index represents 98% to 99% of U.K. equity market capitalization. The Index aggregates the FTSE 100, FTSE 250 and FTSE Small Cap Indexes.
- The ICE BofA U.S. High Yield Constrained Index contains all securities in The ICE BofA U.S. High Yield Index but caps exposure to individual issuers at 2%.
- The ICE BofA U.S. High Yield Index tracks the performance of below-investment-grade, U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
- The JPMorgan EMBI Global Diversified Index tracks the performance of external debt instruments (including U.S. dollar-denominated and other external-currency-denominated Brady bonds, loans, eurobonds and local-market instruments) in the emerging markets.
- JPMorgan GBI-EM Global Diversified Index tracks the performance of debt instruments issued in domestic currencies by emerging-market governments.
- The MSCI ACWI Index is a market-capitalization-weighted index composed of over 2,000 companies, representing the market structure of 48 developed- and emerging-market countries in North and South America, Europe, Africa and the Pacific Rim. The Index is calculated with net dividends reinvested in U.S. dollars.
- The MSCI ACWI ex-USA Index includes both developed- and emerging-market countries, excluding the U.S.
- The MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging-market equities.
- The MSCI Emerging Markets Latin America Index captures large- and mid-cap representation across five emerging-market countries in Latin America.
- The MSCI EMU (European Economic and Monetary Union) Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of countries within EMU. The Index consists of the following 10 developed-market country indexes: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain.
- The MSCI Europe ex-UK Index is a free float-adjusted market-capitalization-weighted index that captures large- and mid-cap representation across developed-market countries in Europe excluding the UK.
- The MSCI Frontier Emerging Markets Index is a free float-adjusted market capitalization index designed to serve as a benchmark covering all countries from the MSCI Frontier Markets Index and the lower size spectrum of the MSCI Emerging Markets Index.
- The MSCI Pacific ex Japan Index captures large- and mid-cap representation across four of five developed-market countries in the Pacific region (excluding Japan).
- The MSCI Japan Index is designed to measure the performance of the large- and mid-capitalization stocks in Japan.
- MSCI United Kingdom Index is designed to measure the performance of the large- and mid-cap segments of the U.K. market.
- MSCI USA Index measures the performance of the large- and mid-cap segments of the U.S. market.
- The MSCI World Index is a free float-adjusted market-capitalization-weighted index designed to measure the equity market performance of developed markets. The Index consists of the following 23 developed-market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the U.K. and the U.S.
- The MSCI World ex-USA Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S.
- The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) system.
- Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
- The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 Index companies with higher price-to-value ratios and higher forecasted growth values.
- The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.
- The Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values.
- The Shenzhen Stock Exchange Composite Index tracks performance of A share stocks (which are denominated in renminbi, the local currency) and B share stocks (which are denominated in Hong Kong dollars, an offshore currency) on China’s Shenzhen Stock Exchange.
- The S&P 500 Index is a market-capitalization-weighted index that consists of 500 publicly-traded large U.S. companies that are considered representative of the broad U.S. stock market.
- The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The Index is supplemented by the subindexes of the 33 industry sectors. The Index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.
- The U.S. Dollar Index (DXY Index) measures the value of the U.S. dollar relative to a basket of other currencies, including the currencies of some of the US’s major trading partners: the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.
There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.
Diversification may not protect against market risk. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.
Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).