Research Review Q2 2021 - Camden Capital
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Research Review Q2 2021 Market performance in the second quarter was broadly positive across most major asset classes and categories, with many themes resembling the pre-COVID backdrop, particularly related to domestic large cap growth’s strong performance. Inflationary concerns continued to remain at the forefront, as many realized inflation measures accelerated to multi-decade highs through the quarter and materially above the Federal Reserve’s (Fed) 2% target. Global equities witnessed strong performance, with most major indices advancing to fresh record high price levels as well. Thematically, domestic large cap growth companies shined, strongly outperforming their smaller-cap and value-oriented counterparts. Bond returns were mostly positive across the board, with credit-oriented sectors finding support in the current lush liquidity backdrop and rate-sensitive sectors benefitting from technical forces—e.g., monthly Fed purchases—and a recent loss of momentum across incoming economic data versus expectations. Performance in the real assets space was overwhelmingly positive, with notable strong performance across energy-related sectors, as well as above-historical-average performance generated by real estate investment trusts (REITs), which generally lagged competing risky asset categories off the COVID-19 bottom. Economic Update 2 Market Returns 3 Global Equity 4 Fixed Income 5 Real Assets 6 Diversifying Strategies 7 Disclosures 8
Economic Update
Incoming Economic Data Cools as Inflation Advances to Multi-Decade Highs
Concerns of persistent above-trend inflation permeated the markets throughout the first half of 2021, driven
by continued accommodative monetary and fiscal programs and the ongoing restart of global economic
activity. With numerous inflation gauges advancing to multi-decade highs, an associated rise in sentiment for
incrementally less-accommodative Fed policy has occurred, placing the Fed’s late-August annual economic
symposium squarely in focus.
Recent surprises to the downside among incoming economic data, however, could complicate or potentially
delay any Fed tightening initiatives. Economic surprise indices, which seek to approximate the magnitude by
which incoming data is exceeding, meeting, or missing median sell-side estimates, lost considerable
momentum in the second quarter, with Bloomberg’s particular composite sliding to pre-COVID lows.
INCOMING DATA HAS RECENTLY SURPRISED TO THE DOWNSIDE
Bloomberg U.S. Economic Surprise Index
1.0 >0 = DATA STRONGER THAN EXPECTED
0.8
0.6
0.4
Z-Score
0.2
0.0 0.00
-0.2
-0.4UNIVERSITY OF MICHIGAN BAD BUYING CONDITIONS: HIGHER PRICES
Houses Vehicles
75
62
Index Value 50
37
25
0
1979 1985 1991 1997 2003 2009 2015 2021
Data sources: University of Michigan, Bloomberg, L.P., Data as of June 2021
Realized inflation rates, a lagging indicator as defined by bodies such as the National B ureau of Economic
Research (NB ER) and the Conference B oard, provide investors with a comprehensive view of recent
Data sources:
inflationary trends Bloomberg,
but L.P.,
do BEA; Data in
little as ofthe
February
way 2021of foreshadowing the future path of inflation, which is highly
dependent upon the interaction of monetary, fiscal, and demographic forces with financial conditions. The
capacity for inflation to graduate beyond a transitory phenomenon into an above-trend long-term dynamic
largely rests on consumers’ ability to absorb higher costs, assuming little deviation in the aggregate standard of
living.
In summary, market performance across the breadth of major asset classes and categories was strongly
positive in the second quarter, although the strength of the market could moderate if incoming economic
data continues to slip and/or the Fed succumbs to pressure to curtail their current ultra-accommodative
posture—a move that could resemble the 2013 “Taper Tantrum,” albeit with far less of a surprise element
accompanying the shift in policy.
Market Returns
Second Quarter 2021
Quarter 1 Yr 5 Yrs Annualized
70% First Quarter 2021 1 Yr 5 Yrs Annualized
64.0%
110%
60% 100%
45.6%
90%
50%
40.9%
40.8%
80%
70%
32.8%
32.4%
40%
27.4%
60%
30% 50%
21.2%
18.1%
17.6%
40%
15.4%
13.3%
13.0%
12.0%
20%
10.3%
30%
8.5%
8.1%
7.9%
7.5%
6.1%
20%
5.2%
5.0%
10%
4.0%
3.0%
2.7%
2.7%
2.4%
1.8%
10%
0% 0%
MSCI Blmbrg FTSE HFRI
- 0.3%
MSCI Blmbrg Alerian Blmbrg Fund
- 1.1%
S&P 500 Emerging Barclays NAREIT Fund of
-10% EAFE Barclays MLP Cmdty Wtd
Index Mkts U.S. Agg All Equity Fund
Index HY Index Index Index Comp.
DIVERSIFYING
GLOBAL EQUITY Index F I X EIndex
D I NCOME Index R E A L A S S E T S Index
Index
STRATEGIES
S&P 500 MSCI EAFE MSCI Blmbrg Blmbrg FTSE NAREIT Alerian MLP Blmbrg HFRI Fund HFRI Fund of
First Quarter 2021 6.2% 3.5% 2.3% -3.4% 0.8% 8.3% 22.0% 6.9% 6.1% 2.5%
Index Index Emerging Barclays U.S. Barclays HY All Equity Index Cmdty Index Wtd Comp. Fund Index
1 Yr 56.3% 44.6% 58.4%Agg Index
Mkts Index 0.7% Index 23.7% 34.2%
Index 103.1% 35.0% 34.1%
Index 24.6%
5 Yrs Annualized 16.3% 8.8% 12.1% 3.1% 8.1% 7.2% -1.3% 2.3% 7.5% 5.7%
Data sources: Lipper, HedgeFund Research
3Global Equity
• Global equities gained in the second G R O W T H R E T U R N S TO D O M I N A N C E
quarter of 2021, as vaccination campaigns U. S . St yle Returns
accelerated in most developed nations,
specifically throughout the Western world. 7% 6.2%
The U.S. economy showed signs of strength 6%
during the second quarter as economic 5%
restrictions were relaxed and consumption 4%
improved. Inflation remained a focal point 3% 2.5%
1.9%
for investors as the May measure of the core 2%
Consumer Price Index rose toward 4% in 1%
the largest increase since June 1992. Despite 0%
inflation concerns, the U.S. equity market -1%
continued to climb with the S&P 500 Index -2% -1.1%
hitting 8 new closing highs in June’s 22 Growth Value Small Large
trading days.
Data source: FTSE Russell
• The gaps in performance between value
and growth stocks and small cap and large
Data sources: S&P and MSCI
cap stocks narrowed over the second S E CO N D Q UA R T E R R E T U R N S S T R E N G T H E N
quarter, specifically in June. Large and mid- Y E A R -TO - DAT E P E R F O R M A N C E
cap growth stocks outperformed their Equit y Indices Per formance Returns (U. S. Dollars)
respective value counterparts; however, Value outperforms growth; small cap outperforms large cap- U.S. Russell Index Performance
small cap value's advantage persisted, Second Quarter Year-to-Date
20%
outperforming small cap growth for the
quarter. 15.2%
15%
• European equities performed well as
companies posted strong earnings and 10% 8.5% 8.8%
7.4%
vaccine distribution accelerated. The 5.2% 5.0%
European market began to favor more 5%
defensive sectors such as consumer staples
and real estate. Manufacturing in euro zone 0%
rose sharply with the PMI reaching 59.2 in S&P 500 Index MSCI EAFE Index MSCI Emerging Markets
June, the highest level since June 2006. UK Index
equities performance was near 6% in USD, Data sources: S&P and MSCI
but the market lagged its European
counterparts, despite notable performance
in the healthcare and technology sectors. GROWTH AND VALUE OUTPERFORMANCE WAS
According to Schroders, an increasing SUPPORTED BY DIFFERENT MARKET ENVIRONMENT
number of fund managers reported having THROUGHOUT THE QUARTER
an overweight allocation to the UK for the Source: FTSE Russell
14% Growth Value
first time since 2014, as the region has seen
11.9%
11.3%
an improvement in global sentiment since 12% 11.1%
the signing of the Brexit deal.
10%
6.8%
6.8%
8%
6.3%
• Japanese equities continued to
5.7%
5.6%
4.8%
4.7%
4.6%
underperform relative to other developed 6%
4.0%
3.9%
markets. Headwinds included an economic
3.1%
4%
2.3%
2.2%
2.0%
2.0%
contraction of 3.9% and a sluggish rollout of
vaccines that extended COVID-19-related 2%
restrictions. Industrial production data
0%
came in below expectations as the global
-0.6%
semiconductor shortage affected the -2%
-1.1%
-1.2%
-1.4%
-1.5%
-2.9%
Japanese automotive production industry,
-4%
which comprises 89% of the country's entire
manufacturing sector. Japan is also facing Large Mid Small Large Mid Small Large Mid Small Large Mid Small
mild deflation amidst significant global April uƌɲ June Second Quarter
inflationary sentiment.
Data source: FTSE Russell
4• Emerging markets posted a strong return over the second quarter despite a sell-off in May in the face of
Futures Markets See Potential for 2021 Rate Hikes Fed Funds Futures Implied Rate Hike Probability - December, 2021
higher-than-expected U.S. inflation data, which acted as a short-term headwind for economies that peg their
currencies against the U.S. dollar. Brazil’s strong performance over the quarter was amplified by the
appreciation of its currency. Rising oil prices throughout the second quarter benefited Russia and Saudi Arabia.
India also posted strong returns over the quarter in spite of facing a major wave of COVID-19 cases, peaking at
more than 400,000 cases on May 6. Meanwhile, many Asian countries, including South Korea and China,
underperformed other emerging market counterparts due in part to ineffective vaccination campaigns.
Fixed Income
• 10-year Treasury yields fell 29 basis points BOND RETURNS REBOUND IN THE SECOND QUARTER
(bps) to 1.45% despite higher-than- Fixed Income Index Returns
expected inflation in April and May. Second Quarter 2021 Year-to-Date
Conversely, 2-year Treasury yields rose 9
BBG U.S. Aggregate Bond Index 1.8%
bps to 0.25% as market expectations for -1.6%
tightening monetary policy rose alongside
BBG U.S. Treasury Index 1.7%
elevated inflation prints. -2.6%
BBGDespite
Fixed-Rate 0.3%
Rising Rates Caused Price Losses TighteningMBS
SpreadsIndex
First Quarter, 2021
• The June meeting of the Federal Open -0.8%
Market Committee (FOMC) left current U.S. BBG U.S. Credit Index 3.3%
monetary policy unchanged. On a forward- -1.3%
looking basis, however, minutes from the BBG U.S. Corporate High Yield Index
2.7%
June FOMC meeting deviated from prior 3.6%
meetings in their acknowledgement of FTSE WGBI Index 1.0%
improving economic conditions, including
the explicit removal of language regarding -4.8%
J.P. Morgan EMBI Global Diversified 4.1%
the economic hardship caused by -0.7%
COVID-19. -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5%
• Corporate credit spreads continued to Data source: Bloomberg L.P.
tighten during the second quarter, with
high yield and investment-grade spreads
tightening 32 bps and 11 bps, respectively. R I S I N G E X PE C TAT I O N S F O R T I G H T E N I N G I N 2022
The combination of falling Treasury yields, Futures Implied Rate Hike Probabilities
tightening credit spreads, and greater
income supported the performance of December, 2021 June, 2022
fixed-rate credit assets. September, 2022 December, 2022
80%
74%
• A modest weakening of the U.S. dollar 70%
provided a tailwind for the performance of Fi
non-dollar denominated bonds. Within 60%
55%
international fixed income, low developed 50%
market yields and rising inflationary
outlook combined with improving credit 40%
sentiment and higher emerging market 32%
30%
yields has led to substantial
outperformance by emerging markets 20%
bonds relative to developed markets.
10%
4%
0%
Mar-21 Apr-21 May-21 Jun-21
Data source: Bloomberg L.P.
5Real Assets
Real Estate
• U.S. REITs gained 12.0% over the quarter, R E A L E S TAT E P O S T S D O U B L E - D I G I T R E T U R N S
bringing year-to-date returns to 21.3%. Trailing REIT Per formance by G eography
Returns for nearly every property type were
All U.S. Equity REITs Global Developed Developed Americas
positive, except for lodging and timber Developed Europe Developed Asia
REITs. Lodging REITs continued to languish 45%
39.2%
due in part to continued delays in the 40%
34.8%
resumption of business travel.
32.8%
30.9%
35%
• Self-storage REITs closed out June up 8.0% 30%
for the month, resulting in strong
21.7%
21.3%
25%
18.7%
performance for the quarter. The subsector
16.1%
20%
has continued to benefit from the turmoil
12.0%
12.0%
11.2%
of COVID-19, creating record-high 15%
10.6%
9.4%
9.0%
occupancy rates. While the future of
8.1%
7.4%
10%
6.6%
6.5%
6.4%
6.0%
5.7%
5.6%
existing leases is questionable, some
4.6%
3.8%
5%
COVID-19-fueled demand may persist even
0.2%
after the economy fully reopens. 0%
QTD YTD 1 Year 3 Year 5 Year
• Management guidance across datacenters Data source: Bloomberg L.P.
has tempered market expectations with
weaker than expected rent growth and
lessee retention. However, the subsector S E L F -S TO R AG E S T I L L I N H I G H D E M A N D
made news in early June with the all-cash U. S. REIT Trailing Per formance by Proper t y Type,
take private transaction of QTS Realty Trust
Quar ter-to - Date
by Blackstone. The purchase price of $78/
share represented a 21% premium over the Lodging/Resorts -0.6%
market price. Speaking to the defensive -0.3%
Health Care 6.3%
cash flow profile of the property type, 7.3%
B lackstone will split the investment Office 9.5%
between its private REIT and infrastructure 9.6%
fund. Industrial 12.0%
12.5%
Apartment 13.0%
• Lodging REITs continued to languish.
14.0%
Leisure properties across U.S. REITs are Residential 14.1%
outperforming their urban peers, and mid- 14.1%
week occupancy remains weak as business Infrastructure 14.1%
travel continues to be delayed. 15.8%
Single Family 17.0%
17.7%
Natural Resources Self-Storage 23.6%
• Oil prices reached $73.47/B B L by the -5% 0% 5% 10% 15% 20% 25%
end of the quarter, the highest level
seen since October 2018. Although U.S. Data source: Bloomberg L.P.
rig counts continue to improve, the
recovery in well development has slowed R I S I N G O I L PR I C E S E L E VAT E R I G CO U N T
and activity is still markedly below pre-
pandemic levels.
U. S. Rig Count & W TI Price
U.S. Dollar per Barrel Rig Count
$110 1,100
• The future of OPEC cuts remains
$100 1,000
somewhat questionable. Recent
discussions within the cartel have been $90 900
U.S. Dollaar per Barrel
surrounded by controversy pertaining to $80 800
the calculation of current cuts, with the $70 700
Rig Count
United Arab Emirates rejecting the $60 600
adoption of production proposals until $50 500
their increased production capacity is $40 400
accounted for in the proposals. Until that $30 300
time, the country has threatened to $20 200
increase supply to gain market share, a $10 100
move that may create significant
$0 0
pressure on oil prices, as seen in early
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21
2020 during the Saudi Arabia/Russia
conflict. Data source: Bloomberg L.P.
6• The Energy Information Agency is forecasting a resurgence in oil demand in excess of pre-pandemic levels, with
the expectation that global liquid fuel demand will reach 103 million BBL/day by the end of 2022.
Infrastructure
• Midstream energy infrastructure continued E N E R G Y ’ S PA N D E M I C R E COV E RY E V I D E N T
its recovery, closing the month and quarter I N I N FR A S T R U C T U R E R E T U R N S
well in excess of broader infrastructure. The Tr a i l i n g I n f r a s t r u c t u r e R e t u r n s
Alerian MLP Index and broader Alerian
DJ Brookfield Global Infra. Composite Index FTSE Global Infra. Core 50/50 Index
Midstream Energy Index ended the quarter Alerian MLP Total Return Index Alerian Midstream Total Return Index
up 21.2% and 16.4%, respectively. This strong Tortoise NA Pipeline Index
performance follows gains in energy
commodities in which both crude and 70%
natural gas front month contracts are up
53.2%
60%
24.2% and 40.0%, respectively. The financial
47.8%
45.6%
position of most midstream energy 50%
40.7%
companies continues to improve, with share
33.9%
40%
buybacks and deleveraging of balance
sheets. 30%
21.2%
20.9%
19.4%
16.4%
14.3%
13.2%
20%
• Listed infrastructure returned 3.1%, as
8.8%
8.1%
7.7%
7.5%
6.7%
5.7%
5.6%
measured by the FTSE Global Core
4.9%
4.7%
10%
4.3%
3.1%
Infrastructure 50/50 Index. This was largely
0%
due to nearly flat returns across most utilities
-0.3%
-1.1%
subsectors as the threat of higher inflation
has brought about expectations of higher QTD YTD 1 Year 3 Year 5 Year
interest rates. Data source: Bloomberg L.P.
Diversifying Strategies
• Hedge funds continued to generate strong H E D G E FU N D S A D D TO S T R O N G 2021 PE R F O R M A N C E
performance through the second quarter of H FR I Indices Per formance Returns (U. S. Dollars)
2021. The reopening of economies globally Second Quarter YTD
continued to gain momentum despite fears 14% 12.7%
surrounding the spread of COVID-19 12% 11.5%
variants, as well as uncertainty regarding 10.0%
signs of inflation in North American and 10%
7.9%
European countries. 8%
6% 5.5% 5.5%
4.8%
• Equity hedge managers led core hedge 4.0% 3.7%
4% 3.6%
fund strategies, driven by record-high 2.7%
2% 1.8%
domestic equity markets, even as volatility Data source: HedgeFund Research
and inflation concerns continued to elevate. 0%
HFRI Fund HFRI Fund HFRI Event - HFRI HFRI Macro HFRI Equity
Weighted of Funds Driven Relative (Total) Hedge
• High-beta and long-biased quantitative, Composite Composite (Total) Value Index (Total)
technology, and multi-strategies led Index Index Index (Total) Index
performance for the quarter. Index
Data source: HedgeFund Research
• Event-driven managers also propelled
strong hedge fund performance as typical
event markets continued to recover from
their post-lockdown lows. Distressed/
restructuring and activist strategies led sub-
strategy performance.
• Global macro performance continued its
positive run through the second quarter, led
by discretionary thematic and commodity
strategies that benefited from increased
economic activity.
7IMPO R T A N T D IS C L O S U R E I N F O R M A T I O N
This document is intended for informational purposes only and contains the opinions of Camden Capital and
should not be taken as a recommendation to invest in any asset class or foreign securities market. The
information contained in this report is current only as of the earlier of the publishing date and the date on which
it is delivered by Camden Capital. All information in this report has been gathered from FEG (also known as
Fund Evaluation Group, LLC) and sources we believe to be reliable, but we do not guarantee the accuracy or
completeness of such information. The economic performance figures displayed herein may have been
adversely or favorably impacted by events and economic conditions that will not prevail in the future. Past
performance is not indicative of future results. All investments involve risk including the loss of principal.
Index performance results do not represent any managed portfolio returns. An investor cannot invest directly in
a presented index, as an investment vehicle replicating an index would be required. An index does not charge
management fees or brokerage expenses, and no such fees or expenses were deducted from the performance
shown.
Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an
offer, to buy or sell any securities.
Any return expectations provided are not intended as, and must not be regarded as, a representation, warranty
or predication that the investment will achieve any particular rate of return over any particular time period or
that investors will not incur losses.
Past performance is not indicative of future results.
Investments in private funds are speculative, involve a high degree of risk, and are designed for sophisticated
investors.
All data is as of June 30, 2021 unless otherwise noted.
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