Year to date through the end of July 2014 the average FutureAdvisor portfolio has outperformed the S&P 500 by +0.97%. The S&P 500 has returned +5.66% relative to +6.63% for the average FutureAdvisor portfolio. For the month of July the S&P declined -1.38% whereas the average FutureAdvisor portfolio declined -0.96% hence outperforming the S&P 500 by +0.42%.
July was a weak month for most markets, during which the gains for stocks from June were largely reversed, though many indices remain close to all time highs. We believe this was due to a combination of factors surfacing later in the month including heightened Ukrainian tensions, Argentina’s default and slightly weaker economic data from the US concerning housing and industrial production. Nonetheless, we believe the economic picture in the US remains fundamentally sound, particular as unemployment falls, since employment is a critical driver of consumption. In addition, we are convinced that equities will remain a desirable asset class for the long term based on long-term historical performance.
FutureAdvisor portfolios performed relatively well. As has been the case for much of 2014 our emphasis on real estate boosted performance as real estate funds returned -0.69% to +1.03%. Emerging markets experienced a notably strong month with returns ranging between +1.01% and +1.59%. Fixed income exposure was also a relative positive, although most funds declined, they fell less than most equity funds. Exposure to other developed markets and smaller capitalization stocks were a performance drag for July, and our value tilt was broadly neutral relative to the S&P 500. Overall, for July our approach of diversification by asset class and geography performed as expected in increasing returns and reducing risk.
2014 currently so far is turning out to be a relatively average year for the markets in a historical context. The almost 6% return for the S&P 500 so far broadly in line with the long term annual average for equity market returns. However, equity returns are relatively volatile each year. In most years the return is significantly higher or lower than the average, and as such an average year is actually relatively unusual.
Note: The FutureAdvisor performances calculated are 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.