- The U.S. dollar has dropped 5.6% since the beginning of the year after having risen 9.3% in 2015. The currency that epitomized narrowly-driven asset class performance in 2015 is now leading the pain trade for many trend-driven investors this year.
- YTD relative asset class performance largely reflects the unwinding of the 2015 strong dollar trade. Beaten down asset classes (commodities, non-U.S. assets, risky fixed income, value strategies) have handily outperformed what worked in 2015 (momentum, quality).
- The market is now bifurcated between high yield / low volatility versus risky / pro-cyclicality, reflecting a bizarro version of the Goldilocks Economy (the porridge is both too hot and too cold).
- Precious metals remain the standout performer, up 22.4% for the year followed by other 2015 laggards such as emerging markets debt (up 14.2%), commodities (7.4%), emerging markets equity (6.3%), and high yield (7.4%). S&P energy, left for dead in mid-February, is now up 13.1% for the year.
- Despite the strong recovery in pro-cyclical market segments, investors continue to express a preference for low volatility / safety with S&P telecom and utilities up 14.1% and 12.8%, respectively. Among factors, high dividend yield and low volatility continue to outperform value.
- This year’s losers: growth momentum and high quality. Last year’s sector darlings (tech, health care, and consumer discretionary) are this year’s laggards.
- In the midst of risk asset recovery, the global economic growth outlook remains uncertain as the world struggles with persistently weak inflation and high debt levels.
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