For the week ending May 16, domestic markets were essentially flat with a range of +0.02% to -0.02% depending on the fund. However, it was a strong week for international diversification with developed market funds returning +0.13% to +0.48% and emerging markets returning a notably strong +2.73% to +3.19%, helped by the BJP’s election victory in India. It was also a strong week for asset class diversification with REITs and fixed income funds returns ranging from +0.20% to +2.04%. The broad diversification within FutureAdvisor portfolios is well positioned to take advantage of the underperformance of US stocks relative to other asset classes and geographies such as occurred this week.
We believe diversification is helpful to your portfolio to reduce risk. We recommend holding asset classes that have performed well over the long term, but also can move in different directions in certain economic environments. As a result, over time your portfolio should achieve positive returns but the diversification should also help smooth returns. For example, though this week has been essentially flat for US stocks, markets in Germany and India have touched new highs. Diversification is one of the key tenets of FutureAdvisor’s portfolio construction, including automatic rebalancing for Premium customers to make sure the portfolio stays on target preventing asset class weightings from getting out of balance.
Economic data in the US this week was mixed. The general picture had been one of a pick up in April after a weak Q1, but retail sales for April were weaker than expected growing 0.1% and industrial production fell 0.6%. However, housing data was positive with good news on housing starts. Early survey data for May such as the Philadelphia and New York surveys of manufacturing activity are looking positive. Jobless claims were also lower than expected as the employment situation in the US continues to improve.
Globally, the picture in eastern Ukraine is starting to look more promising as tensions reduce. In Europe markets rose on corporate earnings and continued expectations that the central bank may take action to spur the economy in June. China continues to be sluggish with rising bad loan data this week a concern. However, the election of the business friendly BJP party in India helped emerging market performance.
The FutureAdvisor performance calculated is net of fees but before trading costs. Differences in account size, age of clients, risk tolerance, timing of transactions and market conditions may lead to different results. Past performance is not indicative of future results. The views expressed are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.