Executive Summary
Concerns over tariffs and war in the Middle East injected a good deal of volatility into markets during Q2. However, equity markets proved resilient, with the S&P 500 erasing all of its post-Liberation day losses, ending June with a quarterly gain of nearly 11%. Outside of the U.S., developed and emerging markets stocks continued to exhibit leadership, both gaining more than 11% on the quarter, with weakness in the dollar adding meaningfully to returns. U.S. investment grade bonds experienced a modest 1.21% during Q2, as rates fell at the front end of the curve but rose meaningfully at the long end.
Equity
U.S. large cap stocks mounted an impressive comeback during Q2, after a peak-to-trough decline of nearly 20% following the Liberation Day tariff announcement. In total, the S&P 500 soared by nearly 25% from its April 8th low, ending June with a quarterly gain of 10.94% and a YTD return of 6.20%. Results on the quarter, were largely driven by a rebound in mega cap tech names, which experienced a boost from a better-than-expected earnings season. Similar to what investors have experienced the last few years, we saw just a handful of names accounting for more than half the index’s quarterly return, with NVIDIA, Microsoft, and Broadcom rising 46%, 33%, and 65%, respectively.
Non-U.S. stocks maintained their leadership position, despite giving back a bit of ground in June. The MSCI EAFE ended the quarter with an 11.78% gain, while the MSCI Emerging Markets index advanced by 11.99%, both in U.S. dollar terms. Non-U.S. markets continued to benefit from a combination of cheap valuations and improving fundamentals. In addition, weakness in the dollar added nearly 7% to returns for U.S.-based investors in developed markets stocks and over 4% to investments in emerging markets equities. Dollar weakness has been a trend for much of the year, with the dollar index (DXY) falling by nearly 12% from its January high.
Fixed Income
Investment grade bonds were generally range bound during the quarter, gaining 1.21%. This is roughly equivalent to a coupon-clipping environment, with the Bloomberg Aggregate Bond index ending the quarter with a yield-to-worst of 4.5%. Risk assets, however, saw outsized returns during Q2. High yield corporates produced a total return of 3.53%, as spreads collapsed following the reciprocal tariff delay and Middle East resolution. In total, they fell from a peak of over 450 bps on April 8th to just 291 bps on June 30th. That said, emerging markets local bonds were the quarter’s top performing asset, gaining 7.62%. Similar to their equity counterparts, returns were greatly supported by weakness in the dollar, which contributed more than 4% to the asset class’s quarterly return.
Real Assets
Commodities were a market laggard on the quarter (-3.08%), as geopolitical uncertainty in the middle east weighed on energy prices. Crude oil, in particular, experienced a wild ride in June. Prices jumped from a low of $60/barrel to a high of $75/barrel, as the conflict between Iran and Isreal escalated. Following the U.S. intervention, prices quickly reversed course, ending June at just $65/barrel. The end result was a quarterly decline of just over 5%. Gold, however, continued to be a bright spot for commodities markets, rising over 5% during Q2 and ending June just shy of its all-time high.
Closed End Funds
Closed end fund discounts were somewhat volatile intra-quarter, but over the entire period they declined marginally. At a universe level, the average closed end fund was trading at 4% on June 30th, down approximately 40 bps from the end of March. This was largely driven by U.S. equity funds, which saw discounts fall by 100 bps on a quarter-over-quarter basis as U.S. equities rallied off their early April lows. On the fixed income side of the market, taxable bond fund discounts continue to trade near historically tight levels, at just 1.50% on average. Municipals continue to be an area of opportunity, with the average fund trading at a near 6% discount to NAV vs. a long-term average of roughly 4%.
iCM Tactical Strategies
iCM’s tactical strategies, which utilize ETFs and/or mutual funds, experienced mixed relative performance for the quarter. The fixed income strategy performed particularly well, boosted by an allocation to emerging markets local debt and an underweight to the long end of the yield curve. Conversely, the equity strategy faced headwinds from an allocation to broad-basket commodities and an underweight to U.S. large growth stocks. For more detailed attribution information please reach out to a member of the ICM Advisor Services team.
Important Disclosure
Integrated Capital Management, Inc. is an SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. This blog 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. Where applicable, portfolio characteristics are shown gross of fees.
Any capital markets views are 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.
TICE Blended Benchmark comprised of 32% S&P 500/8% MSCI EAFE/38% Bloomberg Aggregate Bond/20% Bloomberg Municipal Bond/2% Cash
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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