Last week I complained about information overload, but as we close the book on Q1, the overall story is relatively simple: It has suddenly become a lot more difficult for investors to extract value from markets across all major asset classes. My first chart shows what happened at the start of the year. Specifically, it shows the volatility-adjusted performance of the main asset classes in Q1 compared with their recent 12 month performance. The butcher’s bill for anyone who haven’t been sitting on piles of cash, and long volatility exposure, has been large.
Equities have struggled, bond yields have increased, the dollar has weakened, again, while commodities and gold have outperformed.
The volte-face in equities has been extraordinary. The MSCI World, in dollar terms, was down 1.2% in Q1, while its 90-day volatility increased by about 55% compared to the 360-day trailing volatility. This is in stark contrast to the trend before the swoon at the start of February, when low volatility and a gentle rise in headline indices were the only the story that mattered. Across regions, emerging market equities have done relatively well, eeking out a small positive return in Q1. The S&P 500 is flat—the NASDAQ is up marginally—while European and Japanese equities have been underperforming—in local currency terms—primarily because these indices are very sensitive to FX.
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