Global equity markets saw mixed performance in July, driven by renewed uncertainty around the Iran conflict and a generally strong but mixed earnings season. This resulted in a flat return for the S&P 500 with a good deal of dispersion across market cap and style. Non-U.S. markets also saw mixed results. Non-U.S. developed stocks ended the month in positive territory, as they have less exposure to the AI and semiconductor trade, while broad emerging markets fell by 3% due to steep declines in Korea and Taiwan. U.S. investment grade bonds also struggled, as concerns around inflation and Fed credibility pushed rates higher across the curve. Commodities rallied by more than 7%, with WTI crude prices topping more than $90/barrel toward the end of the month.
Equity
The S&P 500 posted a 0.06% decline in July despite a robust start to Q2 earnings season. The headline return, however, does not give great insight into what actually occurred. Value stocks performed particularly well with large caps rising by nearly 4%. This was largely driven by strong returns from energy and financials names. Conversely, growth stocks saw losses across the market cap spectrum. Large growth names fell by upwards of 5%, while the small growth index fell nearly 6%. We wouldn’t necessarily characterize this as a broad sell off of the AI trade, but we did see investors become much more critical of how companies are spending cash. More specifically, companies that were viewed as prudent allocators of capital were generally rewarded following their earnings reports, while those that continued to increase capital expenditures with little return on investment were punished.
A similar trend was seen outside of the U.S., where markets with less exposure to the AI and semiconductor trade outperformed by a wide margin. Non-U.S. value stocks were a top performer gaining 5.75%. while emerging markets stocks, which tend to have deep ties to the AI and semiconductor supply chain, fell by 3.07% in U.S. dollar terms. This decline was largely driven by a steep sell-off in SK Hynix and Samsung, which combined account for more than 13% of the MSCI Emerging Markets index.
Fixed Income
U.S. investment grade bonds fell by 1.30% in July, pushing their year-to-date return into negative territory. Investors saw rates rise across the curve, as growing inflation concerns and lack of clarity from the Fed weighed on interest rates. The greatest impact was seen at the long-end of the curve, where the 30-year yield soared to a peak of 5.27%, its highest level in nearly two decades. Emerging markets local bonds were one of the few fixed income asset classes to eek out a positive return for the month (0.30%). This was largely thanks to a tailwind created by a weaker U.S. dollar.
Real Assets
Broad-basket commodities were a top performer on the month, gaining 7.54%. Performance was primarily driven by gains in the broad energy complex. Renewed tensions in Iran sent WTI prices soaring from a low of less than $70/barrel early in the month, to as much as $92/barrel on July 23rd. For the year, the benchmark Bloomberg index is now higher by just under 23%, compared to a return of 10.14% for the S&P 500.
Closed End Funds
Closed end funds experienced negative returns in July, as equity markets saw an uptick in volatility and interest rates rose across the curve. This resulted in a slight widening of universe-wide discounts, with the average fund now trading at 5.4% below NAV. Taxable fixed income funds saw the greatest move. As of month end, the average fund traded at a discount-to-NAV of 5.8%. This is roughly 2% wider than the long-term average and is generally in line with levels we saw at the end of March.
iCM Strategy Performance
iCM’s Tactical strategies, which utilize ETFs and/or mutual funds, performed well relative to their benchmarks. Our fixed income strategy was buoyed by our allocation to emerging markets local bonds and an underweight to credit. The equity strategy was supported by an overweight to value across geography and market cap. On a YTD basis all strategies remain comfortably ahead of their blended benchmarks.
iCM’s Tactical Income strategies, which include TICE and TAO, also performed well on a relative basis. Our fixed income strategy benefitted from an allocation to emerging markets local bonds, while the equity strategy was supported by an overweight to Non-U.S. value stocks.
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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