Granite Group Advisors -

NEWS

2014-05-01 :: 1st Quarter Commentary

Looking Back

1st quarter 2014 was positive for almost every sector of the equity markets.  Mid cap stocks were the best performing equity markets but additionally Value stocks also outperformed growth in every sector of the US markets.  Only Emerging markets put in a negative quarter.  All in all a pretty boring quarter for all markets.     

Fixed income:  was up the same amount as the S&P, but with a lot less risk! The fixed income safe haven investors put more money back into the sector.

Absolute return hedge funds performed roughly in line with equities and bonds as there were no big winners this quarter in any investable markets, but did it with a lot less volatility.

Real Estate:  Housing prices as well as housing starts and sales seem to be sputtering so far this year.  

Commodities:  Gold, metals and other commodities staged a bit of a rally in 1st quarter, but mostly on US dollar weakness.

2014 YTD   (Total Return)

Russell 1000  2.05%  

Mid-cap 3.53%       

Russell 2000 1.12%

Russell 1000 Value 3.02%     

Mid-cap Value 5.22%     

Russell 2000 Value 1.78%

Russell 1000 Grth   1.12%    

Mid-cap Growth 2.04%    

Russell 2000 Growth 0.48%

MSCI EAFE  0.77%       

MSCI Emer Mkt -0.80%  

S&P 500   1.81%

Barclays Aggregate 1.84%

 

Looking Forward    

Equities: We continue to be below the street and see only moderate returns for equities in 2014.  The first quarter’s economic data was mixed, some good and some not so good.  The economy is growing but as GGA has been saying for years, it is growing slowly.  The 1st quarter GDP should be relatively light and not hit the 3% target the Fed has predicted.  Many economists and strategists are saying that this is because of the “weather”.  Although the weather had some effect, we do not see it as the main cause of the slow growth.  There is way too much slack in the economy, and with all of the money and liquidity added, one would expect a bigger growth cycle. Fed Chairwoman, Janet Yellen, whose retraction of raising interest rates made the markets fly the last few days of the quarter, does not signal that the economy is doing very well.  If conditions were that good, the Fed would stop the QE programs and interest rates would go higher.  As far as valuations are concerned, the equity markets are trading at a fair value and from our perspective there is not much p/e expansion left, unless earnings come in much better than the current expectations.  In the end, a moderate to high single digit return is what we see going forward in a volatile year.

Fixed income markets:  Will most likely continue to trade in a range with the top yields hitting in the 3% to 3.25% and the lows could go down to 2.5% but nothing too dramatic as the fed keeps its liquidity in this market. We believe the ten year treasury will eventually reach 3.5%  but we do not expect to see any major moves until 2015.

Commercial & Residential Real Estate:  The housing data, while doing better from the bottom, is starting to sputter a bit.  The rebound in housing is no longer moving at the pace of the last couple of years. We might be early, but we expect housing prices to stall in 2015, especially if interest rates start moving up.  Brick and mortar retail is definitely on the decline, as the internet takes more and more business away. The bottom line is a very light year in real estate.

Absolute return hedge fund of funds will continue to outpace fixed income this year and next with slightly more volatility. Our perspective is of a moderate year ahead in equities: it is important to hedge lower volatility in one’s overall portfolio for those who are not as daring.  Hedge Fund of funds are designed to provide a steadier return over time. It is possible that this type of funds may outperform equities, but if they do, it will be by a very small amount. 

Commodities:  Coming off one of the poorer years in commodities, we expect a bit of a rebound, however, it will not be dramatic. The economic data of the globe is being digested. As we see it, there are no clear signs of a major acceleration, nor any signs of major deceleration.  If the economy truly picks up, you will see the commodity sector take off a bit to the upside.

Finally… Happy Spring!

 

The views expressed by Granite Group Advisors, LLC through the end of every quarter are subject to change at any time based on market and other conditions. This commentary is prepared exclusively for Granite Clients.  This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. This is not intended as investment advice, please contact your personal investment advisor before taking any action.


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