Despite rising interest rates and heightened tensions in the Middle East, global equities generally experienced gains in August. However, both stocks and bonds saw an erosion of their intra-month highs as rising interest rates weighed on markets at the back end of the month. This resulted in a gain of 2.7% for the S&P 500, while the Bloomberg Aggregate Bond index eked out a return of 0.43%. Emerging markets equities were a top performer (3.37%), as a broadly weaker dollar added to returns for U.S.-based investors. Commodities also posted strong gains (7.39%), with strong returns coming from precious metals and agriculture.
Equity
Broader equities responded favorably to strong corporate earnings and encouraging inflation data at the start of August. However, this optimism faded toward month-end as treasury yields rose amidst a meaningful shift in Federal Reserve policy expectations. This resulted in a gain of 2.7% for the S&P 500 while growth stocks outperformed value by a good margin (3.7% vs. 2.0%). Small caps finished the month just 1% higher, after rising nearly 5% intra-month. Sector performance delivered a mixed set of results, with Materials (+6.85%), Information Technology (+5.93%), and Health Care (+5.34%), leading S&P 500 returns. Interest rate sensitive areas of the market, such as Utilities (-3.63%) and Real Estate (-1.12%) underperformed. International equities remained resilient with the MSCI Emerging Markets Index gaining 3.4%, finishing near its intramonth high, while the MSCI EAFE Index returned 2.0%. U.S. dollar based returns for both asset classes were supported by a broad weakening of the USD.
Fixed Income
Fixed income markets advanced in August despite elevated volatility. The Bloomberg U.S. Aggregate Bond Index returned 0.39%, having reached roughly 1.0% earlier in the month before paring its gains. Treasury yields initially declined as softer-than-expected labor market and inflation data prompted markets to price in a less hawkish policy outlook. However, these moves were later reversed as firmer inflation readings and hawkish Federal Reserve commentary pushed short-term yields higher. The two-year yield fell to as low as 4.15% by the middle of the month, before rising to 4.34% by month end. Longer-term yields faced continued pressure from inflation and fiscal concerns, with the 30-year treasury reaching 5.31% by mid-month, its highest level since 2007. Credit markets, however, remained well supported as high yield bonds returned 1.0% and spreads tightened by 18 basis points. Emerging markets local bonds were also a top performer (0.90%), benefiting from weakness in the USD.
Real Assets
Real assets delivered market-leading returns during the month, with the Bloomberg Commodity Total Return Index gaining 7.4%, bringing its year-to-date return to 32.3%. The advance was led by agriculture, where returns were supported by a combination of supply-based disruptions, including; Black Sea shipping interruptions, European drought conditions, and downward revisions to U.S. crop expectations. Wheat, corn and soybeans advanced 18.3%, 16.9%, and 8.8%, respectively. Precious metals also posted strong returns, supported by ETF inflows, continued central-bank purchases, and geopolitical uncertainty. Gold prices gained 9.8%, while silver prices rose 14.6% throughout the month. WTI crude finished August with a modest 1.3% return, yet faced more volatility than the headline number suggests. Increased OPEC+ supply and U.S.-Iran agreement talks sparked an 11% drop to lows near $75. This quickly reversed course near month end as optimism surrounding the reopening of the Strait of Hormuz faded.
Closed End Funds
Closed end funds saw a slight reduction in industry-wide discounts last month, despite rising volatility in both equity and fixed income markets. The average fund ended the month with a discount of just under 5%, compared to an average of 5.4% at the end of July. Oddly enough, municipal bond funds experienced the greatest degree of discount narrowing despite negative returns for the asset class. It appears that investors, at least in the closed end fund space, continued to be drawn to their attractive tax equivalent yields. The average municipal fund ended the month with a discount of just 2.3% below NAV, the tightest levels we’ve seen since late 2021.
iCM Strategy Performance
iCM’s Tactical strategies, which utilize ETFs and/or mutual funds, performed well on an absolute basis and were generally in line with their benchmarks. Our fixed income strategy was supported by our allocation to emerging markets local bonds, while longer-dated treasury exposure was a detractor. Within the equity strategy, our allocation to emerging markets value stocks was a contributor, while an underweight to U.S. growth stocks detracted from relative performance. On a YTD basis all strategies remain comfortably ahead of their blended benchmarks.
iCM’s Tactical Income strategies, which include TICE and TAO, outperformed their respective benchmarks during the month. Our fixed income strategy benefitted from an allocation to emerging markets local bonds and short-term treasuries. Emerging markets value stocks were a key contributor to relative performance for our equity strategy.
Important Disclosures
Integrated Capital Management, Inc. is an SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. Monthly “Market Flash” is intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security.
Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Asset Allocation Outlook is intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Outlook may change at any time given shifting market conditions. Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.
Closed end funds are exchange traded, may trade at a discount to their net asset values and may deploy leverage. When the strategy purchases shares of a closed-end fund at a discount to its net asset value, there can be no assurance that the discount will decrease and may possibly increase. If a closed-end fund uses leverage, increases and decreases in the value of its share price may be magnified. Distributions by a closed-end fund may include a return of capital, which would reduce the fund’s net asset value and its earnings capacity. Closed end funds are offered by prospectus. The prospectus and/or other applicable offering documents contain this and other important information about the investment strategy. You should read the prospectus and/or other applicable offering documents carefully before investing. Investors should consider the investment objectives, risks, charges and expenses of the investment strategy before investing. iCM uses third-party data that is believed to be accurate and complete. All data is subject to change. All investing involves the assumption of risk and the possible loss of principal. The main risks as it pertains to iCM’s strategies are US equity risk, international equity and fixed-income market risk, interest rate risk and currency risk. While attempting to achieve the objectives of the strategies, investors will be exposed to the risk of loss from these sources along with others yet to be identified.
TICE Blended Benchmark comprised of 32% S&P 500/8% MSCI EAFE/38% Bloomberg Aggregate Bond/20% Bloomberg Municipal Bond/2% Cash
iCM TICE Alpha Opportunities Benchmarks:
TAO 35/65‐Blended Index: 26.25% Russell 3000/8.75% MSCI EAFE/63% Bloomberg Aggregate Bond/2% Cash
TAO 50/50‐Blended Index: 37.5% Russell 3000/12.5% MSCI EAFE/48% Bloomberg Aggregate Bond/2% Cash
TAO 60/40‐Blended Index: 45% Russell 3000/15% MSCI EAFE/38% Bloomberg Aggregate Bond/2% Cash
TAO 80/20‐Blended Index: 60% Russell 3000/20% MSCI EAFE/18% Bloomberg Aggregate Bond/2% Cash
iCM Income Opportunities Benchmark: Blended Index: 7.50% Russell 3000/2.50% MSCI EAFE/88% Bloomberg Aggregate Bond/2% Cash
Index Definitions
FTSE NAREIT All Equity REITs TR = U.S. REITs
S&P 500 Index = U.S. Large Cap
Russell 1000 Growth TR = U.S. Large Growth
Russell 1000 Value TR = U.S. Large Value
Russell 2000 Index = U.S. Small Cap
MSCI EAFE ND USD = Developed International Equities
Bloomberg High Yield Corp Bond = High Yield Bonds
Bloomberg Municipal TR = Municipal Bonds; BBgBarc
Bloomberg US Credit TR = U.S. IG Corp Bonds
Bloomberg Aggregate Bond = U.S. Taxable Bonds
Bloomberg Treasury TR = U.S. Treasury Bonds
MSCI Emerging Markets ND USD = Emerging Markets Equities;
JPM GBI EM Glbl Divers TR = EM Bonds;
Bloomberg Commodity TR USD = Broad Basket Commodities
First Trust Composite Closed-End Fund TR Index = Closed End Funds
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