May 13 2013 Stocks and US Treasury Yields Both Jump It’s starting to sound like we’re saying this almost every week, but once again stock prices moved higher and set new records. Last week marked the first time the Dow Jones industrial average closed above 15,000, moving up 1% to end the week at 15,118. The S&P 500 index likewise reached a new record, rising 1.2% to 1,633. The Nasdaq composite also rose, climbing 1.7% to 3,436. In fixed income markets, US treasury yields continued to climb (as prices fell), with the yield on the benchmark 10-year treasury moving from 1.74% to 1.90%. What’s Unusual about the Rally? Us stocks are up in the neighborhood of 15% so far this year, an impressive pace to say the least, but in one critical way the rally is quite unusual. Typically, when stocks advance dramatically it is a sign of increased risk appetite on the part of investors. In other words, when stock markets climb rapidly, higher-risk asset classes are usually outperforming. While we are seeing some signs of this (high yield, for example, has been performing well), many higher-risk investments such as commodities and emerging markets equities have actually been performing quite poorly. In the current rally, investors are favoring assets that are typically seen as “safe havens.” This trend has been manifesting itself in a few ways. First, while money has been flowing into stocks, flows into fixed income funds have been even stronger. Second, even the cash that is moving into stock funds investors are focusing on US stocks more than international funds. Third, investors have largely been favoring areas of the market that are typically thought of as “defensive,” such as food and beverage companies, utilities and healthcare. Arguably, these trends are a function of investors who are tentatively stepping back into the markets. The money fueling the rally has been coming largely from cash holdings and it seems that many of the investors who are moving from cash to stocks are looking for areas of the market that are considered the safest and the least volatile. This is why on a year-to-date basis, the classic defensive sectors such as utilities, healthcare and consumer staples have been outperforming. Bonds Eurozone bond prices fell last week as equities worldwide rose, some to new record highs, boosting sentiment towards risk-assets. Spanish 10-year government bond prices rose for the first time in six weeks after the nation sold €4.5 billion of securities at an auction, which had been oversubscribed. Portuguese bond prices also moved higher,
following its first 10-year bond sale since 2011, which was also oversubscribed. Overall, the Merrill Lynch over 5 year government bond index finished the week 0.8% higher. Currencies The US dollar rose against most major counterparts following positive data in the country during the week. The euro also suffered slightly due to the disappointing industrial production data in Italy. The €/$ rate finished the week at 1.30, a weakening of 1%. Commodities Brent crude oil prices fell last week, to $102 a barrel, as rising US WTI supplies and a strengthening dollar dampened appeal for the commodity. The Brent crude oil premium versus West Texas Intermediate has reduced to $8 a barrel, having been as high as $25 towards the end of 2012. Rising risk appetite hurt gold’s price, which fell over 2% during the week. House View Performance Thomond Asset Management maintains an investment house view on how we feel your funds should be invested with each fund manager. Below we have provided you with the performance of each of these managers on an annualized basis. Fund Manager Zurich New Ireland Standard Life Aviva Friends First Irish life
1 Year 12.06% 10.77% 12.39% 9.41% 8.85% 13.57%
3 Year 21.70% 18.95% 24.43% 19.20% 14.82% 18.85%
5 Year 27.44% 20.91% 27.17% 32.51% 15.88% 39.28%
*Performance provided by Financial Express
Note: The performance of the above portfolios may not directly correlate to an individual’s portfolio. Please speak with your financial advisor to understand your specific portfolios performance. Asset allocations between fund managers will differ. Source: Bloomberg, Aviva Investment Mangers, Zurich Investment Managers & Blackrock