For the month of May 2014 the average FutureAdvisor portfolio returned +1.76%* relative to +2.35% for the S&P 500. It was a broadly positive month across investments, with virtually all asset classes rising in absolute terms. For 2014 through to the end of May our return has been 5.90%* relative to 4.96% for the S&P 500.
It was a strong month for US stocks as we believe the markets were able to move beyond the weakness of Q1 2014 when economic growth was -1% in the US and focus on the more recent favorable economic data, particularly improving employment, which is improving ahead of consensus expectations. As has been the case since February, emerging markets, which we consider important for geographic diversification, had a particularly strong month in May returning +2.49% to +3.10% depending on the fund. Though China has been showing signs of slowing, the markets rallied on reducing Russian involvement in Ukraine and a favorable election result in India. Other developed markets returned +1.60% to +1.77% helped by the prospect of potential stimulus in Europe, but still lagging the US due to limited growth in many regions.
Real estate continues to have a very strong 2014, with this being the third month of the last four that REIT funds have returned over 2%. Specifically, returns were +2.40% to +2.53% domestically and +3.37% to +4.67% internationally. We recommend real estate in the portfolio both as a potential source of return at times of moderate economic growth and as a hedge against unexpected inflation.
As is typically the case at times of strong stock performance, fixed income investments had a weaker month returning +0.05% to +1.07% depending on the fund. We hold fixed income given the negative correlation with stocks to help manage risk, as well as the inflation hedge offered by TIPS.
The year so far has highlighted the value of our 12 asset allocation model with different asset classes performing particularly well each month. In January fixed income and domestic real estate outperformed most stock indices. February and March showed the benefits of diversification, in February developed markets in Europe and Asia grew particularly strongly, in March it was emerging markets. April saw high returns to real estate. May witnessed broad growth but with real estate and emerging markets leading. In each month a different theme has emerged, but our diverse asset allocation positions customers to take advantage of growth where it emerges, while managing risk through rebalancing and diversification.
*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.
Photo – Ken Teegardin