May Winners And Losers: Sell In May... Sell Bonds That Is
DB's observations on May's best performers:
Whilst "Sell in May" didn’t work out for Equities it certainly did for Fixed Income. Indeed it was a volatile month for the asset class in general which saw Treasuries suffer their worst monthly total return performance since Dec 2009. The move in core US rates clearly had a negative impact on total return performances in US Credit with IG and HY benchmarks down -2.4% and -0.6%, respectively. The former clearly bearing most of the brunt as that the lower outright yield meant that IG returns was always going to be more sensitive to a rise in rates. Fixed income weakness was also a theme evident across European and Sterling credit with HY also outperforming IG on a relative basis. Whilst the negative total returns in Bunds (-1.5%), OATs (-1.6%) and Gilts (-2.6%) also had a negative impact on total returns, European and Sterling credit enjoyed better return profiles relative to their US counterparts in May.
Away from the shake-up in fixed income, USD strength and EM weakness were the other main themes in May. Indeed EM bonds, FX and equities were mostly weaker although the notable exception here being Chinese equities which interestingly was also May’s best performer in our oft-used ranking chart below. Indeed the Shanghai Composite added nearly 6% in May to post its first positive monthly return in four months. Away from China, performance in Russian, Indian and Brazilian equities were -0.6%, +1.4% and -4.3%, respectively with the latter also coincided with a four week low in the BRL against the Dollar. The MSCI EM index was down 2.6% in May.
Back to equities whilst it was clearly a positive month the S&P 500 (+2.3%), sector performances were mixed. Indeed a micro theme that is gaining momentum on the back of a rise in Treasury yields has been the underperformance and rotation away from divided stocks. Using the S&P 500 sector as a guide the month saw defensive/lower beta Utilities (-8.29%) and Telecom (-6.58%) sharply underperform cyclical/growth plays in Financials (+5.08%), Industrials (+2.96%) and IT (+2.46%). In Europe, the Stoxx 600 and FTSE are up +2.2% and +2.8 – bringing their respective YTD performance to +10.1% and +13.9%. Finally in commodities, Gold and Silver are still lagging most other major asset classes with a YTD performance of -17% and -27%, respectively.