The week ending 4th July saw markets continue to move up in a short trading week. Employment data in the US continued to show strength as has been a theme in past weeks, and manufacturing activity was also very positive. For 2014 through to the end of June our return has been +7.66%* relative to +6.01% for the S&P 500. So far this year the average FutureAdvisor portfolio has outperformed the S&P 500 by +1.65%*.
June was a positive month for the majority of the 12 asset classes that are included in FutureAdvisor portfolios, and many trends from May persisted. Several major indices including the S&P 500 and the Dow hit new all-time highs. Economic news was generally positive during the month of June. We believe the improving US employment picture and renewed stimulus in Europe were important in driving market performance for the month. We also saw US housing market move into more positive territory for both pricing and sales volumes potentially bringing to an end to the ambiguous housing data from earlier in the year. Insurgency in Iraq by militants was a concern, but had limited market impact. US GDP was revised down further for Q1, but markets apparently looked beyond the historic number as more recent economic data implied strength.
Our tilt toward small capitalization stocks performed notably well in June with US small cap returns exceeding +4% growth for the month for the major funds that we include in portfolios. We tilt towards small cap because our research suggests that this category can outperform the broader market over time. International diversification was also an important theme as emerging market performance for the month growing between +1.47% and +3.58% for the major funds we track. As expected, at times of relatively high stock market returns, fixed income returns were somewhat weaker ranging between -0.25% and +1.50% depending on the fund. International bond funds and TIPS outperformed domestic bonds. REITs had a relatively slow month growing +0.20% to +0.45% after several months of very strong growth exceeding 2% a month for most REIT funds earlier in 2014.
Overall we believe as we have reached the halfway point of 2014, the markets continuing to rise as the economic data globally slowly improves. We believe diversification together with automatic rebalancing within FutureAdvisor portfolios is a source of strength in moderating risk by both geography or asset class. This has enabled the average FutureAdvisor portfolio to outperform the S&P 500 by +1.65%* through to the end of June.
*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.