What’s Worked for July 2015

Just a note on what worked and what didn’t in July, because August looks like more of the same.

Quality, large cap companies performed well; leveraged firms did not.

• Why? As economic fears resurfaced, investors preferred firms with more solid balance sheets.

Higher quality bonds outperformed lower quality bonds of similar duration (handily).

• Why? Greece, China contributed to a risk-off mindset.

Capitalization weighted funds beat equal-weighted fund with the same objective as large company stocks beat small and mid-cap stocks.

• Why? As many active funds continue to struggling versus the major indices, investors are switching to passive. Those switches reinforce index performance relative to funds whose average cap is lower – especially value funds.

Europe outperformed Asia by a considerable margin.

• Why? Greece is insignificant; China is not!

Frontier markets outperformed emerging markets.

• Why? China and Chinese exposure are currently a negative.

Currency –hedged foreign fund beat non-hedged foreign funds.

• Why? The dollar continues to be strong anticipating a rate hike this fall.

“New economy” stocks crushed “old economy” stocks.

• Why? Those who are able to create or deploy productivity enhancing products are doing well; those leveraged to the commodity cycle are hurting. The strong dollar is a big factor.

“Risk off” industries like utilities and consumer staples beat risk on industries like industrials and materials.

• Why? See first two notes on quality above.

Growth beat value by a wide margin.

• Why? Fewer firms and fewer industries are experiencing organic growth – as opposed to growth supported by balance sheet manipulation. Those firms are commanding a higher multiple.

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