MM Marquette Associates · and the number of long-term unemployed is 6.2M. The non-farm payroll,...
Transcript of MM Marquette Associates · and the number of long-term unemployed is 6.2M. The non-farm payroll,...
U.S. Economy
Fixed Income Markets U.S. Equity Markets International Equity Markets Hedge Fund Markets Real Estate Markets Private Equity and Hedge Fund Markets
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Marquette Associates Market Environment
August 2010
MMM
U.S. Economic Environment - August 31, 2010
Gross Domestic Product
Unemployment Data
-7%
-5%
-3%
-1%
1%
3%
5%
7% Real GDP Quarterly Percentage Change(seasonally adjusted at annual rates)
10.1%
10.2%
10.3% Unemployment Rate (%)
The "preliminary" estimate for second quarter GDP was released at 1.6%, lower than the prior "advance" estimate of 2.4%. Gross privatedomestic investment (2.75%), personal consumption (1.38%), exports (1.08%), and government spending (0.86%) contributed to GDPgrowth in the current estimate. Imports (-4.45%) detracted from GDP growth. The downward revision in August was largely due to asmaller increase in business inventories ($63.2B vs. $75.7B in the prior estimate) and a larger trade gap caused by fewer exports andincreased imports. The Congressional Budget Office has estimated that spending associated with the stimulus act of 2009 helped to addbetween 1.7 and 4.5% to GDP growth in the current quarter.
The unemployment rate rose to 9.6% in August, increasing by 0.1% from the prior month. The number of unemployed is currently at 14.9Mand the number of long-term unemployed is 6.2M. The non-farm payroll, the net number of non-farm jobs added or subtracted per month,lost 54,000 jobs in August. Private payroll employment added 67,000 jobs in August, while employees tied to the 2010 Census accounted for114,000 jobs lost for the month. Employment gains for August were seen in health care (28K), construction (19K), temporary help services(17K), and mining (8K). Manufacturing (-27K) and government employment (-121K) had job losses. Total non-farm payroll employmentfor June and July were revised to show fewer employment losses.
1250-250750
300400500
Tra
Non-Farm Payroll (000's)(Net Jobs Created)
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Contribution to "preliminary" Second Quarter GDP: 1.6%
Personal consumption expenditures
Gross private domestic investment
Net exports of goods and services
Government consumption expenditures and gross investment
Commodities
-7%
-5%
-3%
-1%
1%
3%
5%
7% Real GDP Quarterly Percentage Change(seasonally adjusted at annual rates)
9.4%
9.5%
9.6%
9.7%
9.8%
9.9%
10.0%
10.1%
10.2%
10.3%
Aug-09 Nov-09 Feb-10 May-10 Aug-10
Unemployment Rate (%)
The "preliminary" estimate for second quarter GDP was released at 1.6%, lower than the prior "advance" estimate of 2.4%. Gross privatedomestic investment (2.75%), personal consumption (1.38%), exports (1.08%), and government spending (0.86%) contributed to GDPgrowth in the current estimate. Imports (-4.45%) detracted from GDP growth. The downward revision in August was largely due to asmaller increase in business inventories ($63.2B vs. $75.7B in the prior estimate) and a larger trade gap caused by fewer exports andincreased imports. The Congressional Budget Office has estimated that spending associated with the stimulus act of 2009 helped to addbetween 1.7 and 4.5% to GDP growth in the current quarter.
The unemployment rate rose to 9.6% in August, increasing by 0.1% from the prior month. The number of unemployed is currently at 14.9Mand the number of long-term unemployed is 6.2M. The non-farm payroll, the net number of non-farm jobs added or subtracted per month,lost 54,000 jobs in August. Private payroll employment added 67,000 jobs in August, while employees tied to the 2010 Census accounted for114,000 jobs lost for the month. Employment gains for August were seen in health care (28K), construction (19K), temporary help services(17K), and mining (8K). Manufacturing (-27K) and government employment (-121K) had job losses. Total non-farm payroll employmentfor June and July were revised to show fewer employment losses.
The price of crude oil finished August at $71.92 per barrel, a decrease of 8.9% from the previous month-end. The Energy InformationAdministration (EIA) lowered its short-term outlook on crude oil prices and is currently projecting oil to average $77 per barrel in the fourthquarter and $82 per barrel in 2011. Oil prices are expected to rise slowly in the short-term due to low projected global GDP growth and lowsupply growth. The price of gold increased by 6.6% in August, finishing the month at $1,246/oz.
-7250-6250-5250-4250-3250-2250-1250-250750
-300-200-100
0100200300400500
Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
Trailing 12 Months C
hange
Mon
th C
hang
e
Non-Farm Payroll (000's)(Net Jobs Created)
Monthly Non-Farm Payroll ChangeTotal Non-Farm Jobs Added Over Past 12 Months
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Contribution to "preliminary" Second Quarter GDP: 1.6%
Personal consumption expenditures
Gross private domestic investment
Net exports of goods and services
Government consumption expenditures and gross investment
$350$450$550$650$750$850$950$1,050$1,150$1,250$1,350
$35
$55
$75
$95
$115
$135
$155
Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10
West Texas Intermediate Crude Oil Price
London PM Fix Gold Price
Prepared by Marquette Associates, Inc. M1
Month Qtr. YTD 1 Year 3 Year 5 Year 10 YearBroad Market Indices
BarCap Universal 1.3% 4.2% 7.9% 10.0% 7.5% 6.0% 6.6%BarCap Aggregate 1.3% 4.0% 7.8% 9.2% 7.7% 6.0% 6.5%BarCap Gov./Credit 1.9% 4.9% 8.7% 9.7% 7.6% 5.8% 6.5%
Intermediate IndicesBarCap Int. Aggregate 0.8% 3.2% 6.7% 8.3% 7.3% 5.9% 6.2%BarCap Int. Gov./Credit 1.2% 3.7% 6.9% 8.2% 7.0% 5.7% 6.1%
Government Only IndicesBarCap U.S. Treasury 2.0% 4.6% 8.7% 8.1% 7.6% 5.9% 6.2%BarCap Long Gov. 6.8% 11.8% 21.0% 16.8% 11.5% 7.5% 8.3%BarCap Government 1.8% 4.2% 8.0% 7.7% 7.4% 5.8% 6.2%BarCap Int. Government 1.1% 3.2% 6.4% 6.5% 6.8% 5.7% 5.8%BarCap Mortgage 0.2% 2.2% 5.5% 7.0% 7.9% 6.4% 6.4%BarCap 1-3 Year Gov. 0.2% 0.9% 2.4% 2.7% 4.5% 4.4% 4.4%91 Day T-Bill 0.0% 0.1% 0.2% 0.2% 1.4% 2.8% 2.7%BarCap U.S. TIPS 1.7% 3.3% 6.4% 10.5% 7.2% 5.3% 7.5%
Corporate Bond IndicesBarCap U.S. Credit 2.0% 6.0% 9.8% 12.9% 8.4% 6.0% 7.1%BarCap High Yield 0.0% 4.9% 8.3% 21.5% 8.6% 7.5% 7.5%50% BB/50% B 0.4% 5.4% 8.4% 18.7% 7.7% 6.8% 7.1%CSFB Leveraged Loan Index 0.4% 1.6% 5.1% 12.5% 3.3% 3.8% 4.5%
Fixed Income Market Environment - August 31, 2010
Benchmark Annualized Performance
Government and investment grade corporates outperformed low quality sectors as investors sought safety from declining equity markets. Long bonds outperformed short duration bonds due to a flattening yield curve.
Month Qtr. YTD 1 Year 3 Year 5 Year 10 Year
BarCap Corporate AAA 2.7% 6.2% 12.0% 12.2% 6.1% 4.9% 6.4%BarCap Corporate AA 1.9% 5.4% 8.5% 10.4% 7.5% 5.6% 6.8%BarCap Corporate A 2.1% 6.6% 10.2% 13.2% 7.3% 5.2% 6.6%BarCap Corporate BBB 1.9% 6.1% 10.4% 15.2% 9.7% 6.7% 7.4%BarCap Corporate BB 0.7% 6.0% 9.5% 20.0% 10.4% 8.0% 8.2%BarCap Corporate B 0.1% 4.8% 7.2% 17.4% 5.0% 5.6% 6.1%BarCap Corporate CCC -1.6% 3.0% 6.1% 23.8% 3.9% 5.4% 6.0%
Corporate Quality Indices Annualized Performance
Government and investment grade corporates outperformed low quality sectors as investors sought safety from declining equity markets. Long bonds outperformed short duration bonds due to a flattening yield curve.
Investment grade credits posted higher returns than speculative grade credits in August as investors sought quality. The most speculative credits - CCC and below - had negative returns for the month.
Yields continued to drop in August, and the yield curve flattened. The 10-year fell 43 basis points, and the spread between the 2-year and10-year narrowed 36 basis points.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.0 0.5 2.0 3.0 5.0 10.0 30.0
Aug-10 Aug-09 Jul-10 Yield Curve
YearsPrepared by Marquette Associates, Inc. M2
Month Qtr. YTD 1 Year 3 Year 5 Year 10 YearBroad Market Indices
Dow Jones (10,014.72) -3.9% -0.5% -2.1% 8.4% -6.5% 1.8% 1.2%Wilshire 5000 -4.6% -3.7% -3.9% 5.7% -8.1% -0.5% -1.1%Russell 3000 -4.7% -4.0% -4.3% 5.6% -8.3% -0.7% -1.3%
Large-Cap Market IndicesS&P 500 (1,049.33) -4.5% -3.2% -4.6% 4.9% -8.7% -0.9% -1.8%Russell 1000 -4.5% -3.5% -4.4% 5.6% -8.3% -0.7% -1.6%Russell 1000 Value -4.3% -3.6% -3.0% 5.0% -10.6% -1.7% 1.9%Russell 1000 Growth -4.7% -3.5% -5.7% 6.1% -6.3% 0.1% -5.4%
Mid-Cap Market IndicesRussell MidCap -4.4% -3.9% 0.4% 12.3% -6.3% 0.8% 3.7%Russell MidCap Value -4.5% -3.7% 1.7% 13.0% -6.8% 0.5% 6.9%Russell MidCap Growth -4.3% -4.2% -1.1% 11.6% -6.3% 0.8% -2.5%
Small-Cap Market IndicesRussell 2000 -7.4% -8.7% -3.0% 6.6% -7.4% -0.7% 2.5%Russell 2000 Value -7.5% -9.6% -2.5% 6.1% -8.0% -1.3% 6.6%Russell 2000 Growth -7.3% -7.8% -3.4% 7.2% -7.0% -0.2% -1.9%
U.S. Equity Market Environment - August 31, 2010
U.S. Equity Index Annualized Performance
August at a Glance via the S&P 5001
The S&P 500 (-4.5%) and the rest of the stock market gave up July's gains in August. A string of negative economic news pushed equity pricesdown amid lower trading volume. The struggling housing market fell precipitously as the impact of the expiration of the homebuyers' tax creditcontinued. Inventories rose quickly as existing home sales fell 27.2%. 2Q GDP was revised lower to 1.6% which more than offset prior monthgains in other indicators such as personal consumption and durable goods orders. Small-caps underperformed large-caps.
1,150
1,200
1,250 Barnes and Noble reported that it is
exploring a sale of the company
Intel cut a deal to
Producer Price Index rose for the first time in four
months
New home sales fell 12.4% m/m to the lowest
level on record
Intel agreed to buy McAfee for $7.7B. Jobless claims surged
unexpectedly. Tyco was announced as replacement for Smith
International in the S&P 500
Month Qtr. YTD 1 Year 3 Year 5 Year 10 YearConsumer Staples -1.4% 2.0% 1.6% 10.6% 2.3% 5.6% 6.2%Consumer Discretionary -3.8% -6.4% 2.0% 17.2% -5.1% -0.6% 0.5%Energy -4.3% -2.5% -9.2% 0.3% -8.8% 2.0% 7.3%Financials -7.8% -7.4% -5.3% -6.5% -24.2% -12.1% -4.9%Health Care -1.5% -1.8% -8.9% 0.4% -4.7% -0.5% 0.1%Industrials -7.0% -4.5% 1.7% 14.5% -9.6% 0.0% 0.2%Information Technology -7.0% -6.5% -10.9% 3.1% -5.2% 0.9% -8.8%Materials -2.6% 1.8% -4.7% 7.4% -6.0% 4.6% 7.0%Telecommunications 2.3% 11.6% 2.5% 13.4% -8.3% 3.2% -4.0%Utilities 1.5% 8.5% 1.4% 10.2% -3.6% 2.7% 1.7%1 Source: Minack, Gerard. In the Flow - August 2010; September 2, 2010; p. 45.
S&P Industry Sector Performance
The S&P 500 (-4.5%) and the rest of the stock market gave up July's gains in August. A string of negative economic news pushed equity pricesdown amid lower trading volume. The struggling housing market fell precipitously as the impact of the expiration of the homebuyers' tax creditcontinued. Inventories rose quickly as existing home sales fell 27.2%. 2Q GDP was revised lower to 1.6% which more than offset prior monthgains in other indicators such as personal consumption and durable goods orders. Small-caps underperformed large-caps.
Telcommunications (+2.3%) and Utilities (+1.5%) were the only S&P 500 sectors up in August. 78% of Telecommunication stocks were positiveyear-to-date versus the index average of 40%. Financials (-7.8%), Industrials (-7.0%), and Information Technology (-7.0%) experienced theheaviest losses. Declines in these sectors and small-cap stocks are indicative of a broad-based flight from risky assets. In general, energycommodity prices fell further, contributing to the Energy sector's dismal year-to-date performance (-9.2%).
1,1021,049
950
1,000
1,050
1,100
1,150
1,200
1,250
7/30 8/2 8/5 8/8 8/11 8/14 8/17 8/20 8/23 8/26 8/29
Barnes and Noble reported that it is
exploring a sale of the company
Intel cut a deal to acquire Infineon
Technologies' wireless unit for $14B
Producer Price Index rose for the first time in four
months
Core CPI rose by 0.1% in
JulyBernanke reassured investors
that the Fed would act if recovery falters
New home sales fell 12.4% m/m to the lowest
level on record
Unemployment rate remained at 9.5% as U.S. economy shed
more jobs
Existing home sales plunged to
the lowest level in 15 years
Intel agreed to buy McAfee for $7.7B. Jobless claims surged
unexpectedly. Tyco was announced as replacement for Smith
International in the S&P 500
Economists forecasted a downward revision in 2Q GDP from 2.4% to 1.3%
Prepared by Marquette Associates, Inc. M3
Month Qtr. YTD 1 Year 3 Year 5 Year 10 YearMSCI ACWI ex U.S. -2.7% 4.8% -5.4% 3.3% -7.9% 3.8% 3.2%MSCI EAFE (in US $) -3.1% 5.1% -7.6% -1.9% -10.3% 1.4% 1.5%MSCI EAFE (Local) -2.7% -1.0% -5.3% 0.1% -10.9% -0.3% -1.4%MSCI EAFE Value -3.5% 4.7% -9.6% -6.1% -11.4% 0.9% 3.2%MSCI EAFE Growth -2.7% 5.4% -5.6% 2.4% -9.2% 1.9% -0.2%Citi Global ex U.S. < $2 Billion -1.6% 5.4% 0.7% 11.3% -5.7% 5.9% 8.5%Citi World ex U.S. < $2 Billion -2.5% 3.7% -1.0% 4.8% -9.3% 2.3% 6.8%Citi EMI Global ex U.S. -2.1% 6.0% -0.3% 9.3% -7.5% 5.1% 7.1%Citi EMI World ex U.S. -2.8% 4.9% -1.8% 4.2% -9.7% 2.8% 5.8%MSCI Emerging Markets -1.9% 5.6% -0.1% 18.3% -1.2% 12.7% 11.6%MSCI Frontier Markets 0.4% 5.6% 7.0% -0.4% -14.8% -5.8% ---
International Equity Market Environment - August 31, 2010
International Equity Index Annualized Performance
Country Returns
In August, international equities mostly depreciated as the July rally ran out of steam. Small-caps outperformed large-caps, while frontiermarkets outpaced emerging markets. Growth outperformed value stocks for the 11th time in the last twelve months. The U.S. dollar appreciatedagainst most foreign currencies, with the yen being the only major currency to appreciate against the U.S. dollar for the month.
Globally, stocks mostly fell coming off of a strong July. Switzerland, Chile and Hong Kong were the only countries to appreciate during August,while France fell the most, losing 6.1% for the month.
MonthCanadaUSAMexico
EuropeFranceGermanyUKSwitzerland
-1.9%-4.5%-5.0%
Pacific
JapanUKFranceGermanySwitzerland
25%20%11%
9%8%
12.9%4.9%
14.0%
7.6%-0.9%11.9%
1 Yr. 5 Yr.
Top Five Weights in EAFE
Month-3.7%-6.1%-5.9%-2.0%2.5%
-2.7%-10.0%
-4.7%3.5%7.1%
1.3%0.2%3.8%0.2%5.9%
1 Yr. 5 Yr.
Month-2.2% -0.3% 1.7%
1 Yr. 5 Yr.
1 Yr 5 YrMonth 5 Yr
Australasia -16% World Capitalization
Europe -30% World Capitalization
August Global Equity Market PerformanceCountry U.S. dollar Local CurrencyMexico -5.0%Switzerland 2.5%Canada -1.9%Japan -2.3%France -6.1%U.S. -4.5%U.K. -2.0%Australia -3.1%Germany -5.9%Hong Kong 1.1%China -2.8%
-1.1%
-3.7%-5.3%1.6%
-0.7%
-2.6%1.2%
-3.6%-1.4%-0.1%-4.5%
In August, international equities mostly depreciated as the July rally ran out of steam. Small-caps outperformed large-caps, while frontiermarkets outpaced emerging markets. Growth outperformed value stocks for the 11th time in the last twelve months. The U.S. dollar appreciatedagainst most foreign currencies, with the yen being the only major currency to appreciate against the U.S. dollar for the month.
All major foreign currencies depreciated against the U.S. dollar during the month with the exception of the Japanese yen.
-10.0%
-5.0%
0.0%
5.0%
10.0%MSCI EAFE Pound Euro Yen
Translation Effect vs. the U.S. dollar
Month YTD 1 Year 5 Year 10 Year
Globally, stocks mostly fell coming off of a strong July. Switzerland, Chile and Hong Kong were the only countries to appreciate during August,while France fell the most, losing 6.1% for the month.
Switzerland appreciated the most when measured in U.S. dollars, while Canada appreciated the most at the local level.
MonthCanadaUSAMexico
EuropeFranceGermanyUKSwitzerland
MoroccoS. Africa
AustraliaNew Zealand
-1.9%-4.5%-5.0%
L. AmericaChileBrazil
PacificChinaHong KongJapanIndia
JapanUKFranceGermanySwitzerland
25%20%11%
9%8%
12.9%4.9%
14.0%
7.6%-0.9%11.9%
1 Yr. 5 Yr.
Top Five Weights in EAFE
Month-2.2%7.3%
-3.2%
23.6%53.8%21.5%
20.4%19.4%24.3%
1 Yr. 5 Yr.
Month-3.7%-6.1%-5.9%-2.0%2.5%
-2.7%-10.0%
-4.7%3.5%7.1%
1.3%0.2%3.8%0.2%5.9%
1 Yr. 5 Yr.
Month-2.2%-2.8%1.1%
-2.3%-1.4%
-0.3%9.4%
15.6%-5.8%21.7%
1.7%19.6%8.2%
-1.3%17.8%
1 Yr. 5 Yr.
18.4%11.9%
1 Yr. 5 Yr.Month-5.3%-2.9%
-5.7%16.5%
5 Yr.
Month-3.1%-3.3%
7.6%-3.5%
8.4%-4.1%
1 Yr. 5 Yr.
MSCI EAFE Index Countries Highlighted in Red
Canada and the U.S. -54% World Capitalization
Australasia -16% World Capitalization
Europe -30% World Capitalization
Prepared by Marquette Associates, Inc. M4
Month Qtr. YTD 1 Year 3 Year 5 Year 10 YearHFRX Global 0.2% 0.4% 0.2% 4.6% -4.0% 0.3% 3.6%HFRX Hedged Equity -0.4% 0.5% -1.6% 2.4% -6.3% -0.8% 2.5%HFRI Composite 0.4% 1.0% 1.6% 7.2% 0.8% 5.0% 5.6%HFRI Fund of Funds 0.0% -0.1% -0.4% 2.8% -3.1% 2.0% 3.4%HFRI Equity Hedge -0.9% -0.5% -0.7% 5.5% -2.0% 3.3% 4.0%HFRI Event-Driven -0.1% 0.9% 4.5% 13.0% 1.1% 5.3% 7.7%HFRI Macro 2.2% 2.0% 1.0% 3.1% 5.6% 6.7% 7.7%HFRI Merger Arbitrage 0.5% 2.0% 2.5% 5.9% 3.1% 6.2% 5.3%HFRI Relative Value 0.8% 3.0% 6.4% 13.4% 4.4% 6.7% 6.7%
Benchmark Annualized Performance
Hedge Fund Market Environment - August 31, 2010
Ten Year Risk/Return
Hedge funds had strong relative performance in August compared to the broad equity market. Hedge funds had little success in taking advantageof the volatility in the equity markets through July, but that began to change in August. Many funds reported stronger gains on their shorts versuslosses on their long positions, leading to solid performance for the month. Overall, most funds remain conservatively positioned with low netexposure to the market.
The chart below displays the risk and return characteristics of hedge funds versus some of the other traditional asset class benchmarks. Over thelast ten years, hedge funds have outperformed the U.S. and non-U.S. equity markets with comparable volatility to fixed income.
HFR FOF
Hedged Equity
Event-DrivenGlobal Macro
Merger Arb.Relative Value
HFRX Global
BarCap Agg.
SC A
2.0%
4.0%
6.0%
8.0%
10.0%
Ret
urn
Source: Bloomberg, Standard & Poors
Hedge funds had strong relative performance in August compared to the broad equity market. Hedge funds had little success in taking advantageof the volatility in the equity markets through July, but that began to change in August. Many funds reported stronger gains on their shorts versuslosses on their long positions, leading to solid performance for the month. Overall, most funds remain conservatively positioned with low netexposure to the market.
The chart below shows the percentage of stocks advancing and declining each year since 1995 (2010 data is through 08/31/10). Hedged equitymanagers found it difficult to outperform in 2008 and 2009 in-part because stocks were primarily moving in the same direction (up in 2009 anddown in 2008). We are finally seeing an end to that trend in 2010, which typically bodes well for hedged equity returns.
The chart below displays the risk and return characteristics of hedge funds versus some of the other traditional asset class benchmarks. Over thelast ten years, hedge funds have outperformed the U.S. and non-U.S. equity markets with comparable volatility to fixed income.
-100%-80%-60%-40%-20%
0%20%40%60%80%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Percentage of S&P 500 Stocks Advancing (Declining) Each Year
DeclineAdvance
HFR FOF
Hedged Equity
Event-DrivenGlobal Macro
Merger Arb.Relative Value
HFRX Global
S&P 500
BarCap Agg.
MSCI EAFE
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
Ret
urn
Standard Deviation
Prepared by Marquette Associates, Inc. M5