Granite Group Advisors -

NEWS

2014-07-18 :: Quarterly Commentary 2nd Quarter, 2014

Looking Back

The 2nd quarter showed a great rebound in performance after the volatile 1st quarter.  Every sector, as well as all non-US indexes, did well.  Emerging Markets put in the best quarterly return in the mid 5% range and US Large Cap stocks came in second.  Small Cap stocks put in the weakest quarter, but still positive. And Value outperformed Growth again in every sector.     

Fixed income:  Rallied up a bit more than in the first quarter.

Absolute Return Hedge Fund of Funds underperformed fixed income. They should not be compared to equity markets as they are completely different asset class.

Real Estate:  We saw a nice rebound in housing from the weather plagued sector in the second quarter but data was mixed and year over year prices have started to falter.  

Commodities:  With all the fear of war in the middle east we saw Gold, metals and other commodities stage another leg up in the 2nd qtr.

2014 YTD   (Total Return)

Russell 1000  7.27%  

Mid-cap 8.67%       

Russell 2000 3.19%

Russell 1000 Value 8.28%     

Mid-cap Value 11.14%     

Russell 2000 Value 4.20%

Russell 1000 Growth  6.31%    

Mid-cap Growth 6.51%    

Russell 2000 Growth 2.22%

MSCI EAFE  2.95%       

MSCI Emer Mkt 4.80%  

S&P 500   7.14%

Barclays Aggregate 3.93%

 

Looking Forward    

Equities: We are not as bullish as other financial firms and see moderate returns for equities for the rest of 2014.  The first quarter’s revised GDP of -2.9% was much worse than anticipated.  Most blamed the weather but the reality is we are growing very slowly and we expect sub 3% for Q2 GDP.  Economic data was mixed during the quarter and most economists are expecting a big pickup in the 2nd half.  We do expect a little pickup in the economy but Granite Group believes that current valuations reflect the good news.  The equity markets could push up a bit, but we do not see big upside unless growth picks up.

Fixed income markets:  The Ten year treasury will most likely end the year flat.  Yields might go lower in the very near term, but the ten year treasury will eventually reach 3.0% by year end and closer to 3.5% in 2015. This will all be dependent on if salaries increase as that makes up a large percentage of the core inflation number.

Commercial & Residential Real Estate:  Real Estate data is mixed.  First quarter’s weather issues have been turned around, but it is starting to slow again as we enter the summer months.  We are not that constructive on the residential space as demographics are not in favor.  Commercial real estate, especially retail, is having a difficult time with the enormity of spending that is now going through the internet.  Renting is still the best space in housing but it is getting very pricey and makes home buying more affordable. We might be early, but we expect housing prices to stall in 2015, especially if interest rates start moving up. The bottom line: real estate is a tough space, unless it is rental or office.

Absolute Return Hedge Fund of Funds We continue to believe that absolute return hedge funds will outpace fixed income for years to come.

Commodities:  As we predicted, commodities have rebounded.  Gold and Oil have had a great year and we expect that to continue.  If the economy truly picks up, you will see the commodity sector take off a bit to the upside.

Have a wonderful Summer!

 


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