Equities are significantly higher so far in the month of June after rallying back from a relatively poor month in May. Leading the way is Sector Rotation as it benefited from its high concentration (approx. 25% each) in the technology and consumer cyclical sectors. Low volatility equities have trailed its peers so far this month as investors buy up Quality and Value equities.
Comments on this week’s report:
- Due to an increase in market volatility over the trailing three months, investors fled to Low-volatility equities causing them to perform relatively well in that time frame. However, surprisingly enough, High Dividend equities (which also tends to have a low-volatility, conservative nature) have underperformed its peers over the trailing three months.
- Year-to-date Sector Rotation is outperforming its peers as its high concentration in the technology and industrial sectors (appoximately 25% each) has driven it to outperform. However, for that same reason Sector Rotation has underperformed over the trailing 1-year period as its lack of diversification caused it to suffer a larger drawdown in the late 2018 market correction.
- Contrary to Sector Rotation, Low-volatility is vastly outperforming all other listed strategies on a 1-year basis as it benefited from its relatively lower drawdown during the stock market correction at the end of 2018, while still participating in the more recent stock market rally. Similar to Low-Volatility, Conservative portfolios that have a greater allocation to bonds, also benefited from their relatively lower drawdown in the late 2018 market correction.
- Quality based equities (which are measured on ROE, accrual ratio, and financial leverage) have performed relatively well in all time frames as it remains at the top of the heap. Conversely, Value based equities (which are stocks that are considered undervalued relative to other comparable companies) have trailed the overall stock market in most time frames.
- Momentum based equities have outperformed over the trailing 3-year and 5-year periods as during those time frames the stock market has primarily experienced upward momentum.