Research Review SEPTEMBER 2021 - Camden Capital
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Research Review SEPTEMBER 2021 Most risk assets posted strong returns in August, despite the ongoing spread of the COVID-19 Delta variant, cooling incoming economic data, and anticipation that the Federal Reserve (Fed) will shift its accommodative posture by year-end. While the count of unemployed U.S. workers exceeded 8 million in the month—nearly 50% higher than pre-COVID levels—the most recently published statistics from the Bureau of Labor Statistics indicated the highest number of unfilled positions in at least 20 years, at nearly 11 million openings. Global equity performance was broadly positive for the month, particularly in the domestic growth category, although international developed and emerging markets witnessed positive performance as well. Bond returns were mixed, as a modest rise in interest rates during the month served as a performance headwind to rate-sensitive sectors while the credit-oriented corners found support in a generally risk-on market environment. Performance across real assets was similarly mixed, as REITs and global listed infrastructure notched solid monthly gains, but the energy-related corners of the real assets complex suffered performance challenges in August. Economic Update 2 Market Returns 3 Global Equity 4 Fixed Income 5 Real Assets 6 Diversifying Strategies 7 Disclosures 8
Economic Update
Fed Reaffirms Expectations for Year-End Tapering of Monthly Asset Purchases
The Fed’s annual Jackson Hole Economic Symposium, held in a virtual setting in late-August due to the
COVID-19 Delta variant, reaffirmed the Fed’s plans as communicated in their July 27-28 meeting
minutes to begin tapering the pace of monthly asset purchases by the end of the year, provided the
ongoing progress seen on both the employment and inflation fronts is sustained.
Specific to the Fed’s inflation mandate, which has been informally relaxed in recent quarters to
provide the Fed with added policy flexibility, numerous data points corroborate the need for a
scaling-back of the Fed’s current ultra-accommodative stance. Home price appreciation,
for example, has swelled to nearly 20% year-over-year through June according to the latest S&P/
Case-Shiller Home Price Index data, a reading more than quadruple the historical average
and the highest in at least 20 years.
S&P/CASE -SHILLE R COMPOSITE 20 ( YE AR- OV E R-YE AR)
S&P/Case-Shiller Home Price Index Historical Average
20% 19.1%
15%
Year-over-Year Change
10%
5% 4.5%
0%
-5%
-10%
-15%
-20%
2001 2005 2009 2013 2017 2021
Data sources: S&P/Case-Shiller, Bloomberg, L.P.; Data as of June 2021
Data sources: BLS, NBER, Bloomberg, L.P.; Data as of April 2021
Much speculation has surfaced in recent months pointing to the Fed initiating the tapering process
first on the mortgage-backed security (MBS) front, with a scaling back of Treasury purchases and an
eventual hiking of the policy rate to follow. Should this sequence prove accurate, double-digit
annual home price gains are likely to face significant headwinds in the coming quarters.
Currently, market participants in the futures and options market have discounted numerous 25
basis point Fed rate hikes in the coming years, with “liftoff” from the zero-bound potentially set to
commence in the second half of 2022, based on current positioning. Over the next three years, the Fed
is expected to hike interest rates nearly 100 basis points, according to Morgan Stanley’s Market Implied
Pace of Fed Rate Hikes gauge.
2M A R K E T I M P L I E D PA C E O F F E D R AT E H I K E S
Next 24 Months Next 36 Months
5
4 3.9
25 bp Hikes 3
2.3
2
1
0
-1
Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21
Data sources: Bloomberg, L.P., Morgan Stanley; Data as of September 8, 2021
The ultimate tapering/reduction in the pace of the Fed’s current asset purchase rate of $120 billion
per month is expected to dominate the headlines through the end of the year and into 2022, the
sentiment of which has percolated at a peculiar juncture on the road to returning to pre-COVID
economic strength, as incoming economic data continues to underwhelm sell-side expectations,
COVID-19 Delta variant cases have been spiking, and a year-end debt ceiling debate is on the horizon.
To conclude, August presented investors with mostly positive total returns across the breadth of
global asset classes and categories, with domestic-oriented sectors continuing to garner the
majority of investor attention. The Fed continues to guide market expectations in favor of a year-end
scaling back in the pace of their monthly asset purchases, the timing of which could be complicated
should incoming economic data continue to underwhelm consensus estimates and the rise in
COVID-19 cases due to the Delta variant. Month 1 Yr 5 Yrs Annualized
60%
Market
50%
Returns
A U G U S T 2 0 21
Month 1 Yr 5 Yrs Annualized
40%
60%
50%
30%
40%
20%
30%
10%
20%
0%
10%
0%
-10% MSCI Blmbrg Alerian Blmbrg
S&P 500 Emerging Barclays NAREIT Fund Wtd Fund of
EAFE Barclays MLP Cmdty
-10% Index Mkts U.S. Agg All Equity Comp. Fund
Index HY Index Index Index
Index Index Index DIndex
I V E R S I F Y I Index
NG
GLOBAL EQUIT Y FIXED INCOME REAL ASSETS S TR ATEGIES
Month 5.2% 3.0% 2.5%
MSCI 0.8%
Blmbrg 1.1% 8.1%
FTSE 7.1% 8.3% 2.7%
HFRI 2.3%
HFRI
MSCI Blmbrg Alerian Blmbrg
1 Yr S&P 500
45.8% 39.9% Emergi
48.7%ng Barclay
-0.3%s 19.7% NAREI
33.4%T 45.5% 48.5% Fund Wtd
31.5% Fund of
22.5%
EAFE Barclays MLP Cmdty
5 Yrs Annualized Index
17.4% 8.9%
Index
Mkts
12.5% U.S.3.2%
Agg
HY 7.5%
Index
All Equity
9.3% -2.0%
Index 2.3%
Index
Comp.
7.8% Fund
6.0%
Index Index Index Index Index
Month 3.0% 1.8% 2.6% -0.2% 0.5% 2.1% -2.3% -0.3% 0.8% 1.1%
1 Yr 31.2% 26.1% 21.1% -0.1% 10.1% 36.1% 54.8% 31.0% 20.9% 13.7%
5 Yrs Annualized 18.0% 9.7% 10.4% 3.1% 6.7% 9.4% -2.6% 4.2% 7.4% 5.8%
Data sources: Lipper, HedgeFund Research
3I N V E S TO R S FAVO R G R O W T H E Q U I T I E S A M I D
Global Equity E CO N O M I C S O F T E N I N G
U. S. St yle Returns
Although the month saw positive 4% 3.6%
equity returns across all major regions,
performance was relatively subdued, 2.9%
3%
as the global reopening continued but 2.2%
2.0%
economic recovery rates began to slow. U.S. 2%
equities were among the top performers
of the month, with 87% of companies that 1%
reported earnings by the end of the month
beating earnings and revenue expectations, 0%
Growth Value August Small Large
which is well above the 75% and 65% five-
year average for beating earnings and Data source: FTSE Russell
sales expectations, respectively. The U.S.
U. S . E Q U I T I E S O U T P E R F O R M I N G I N 2021
equity market also responded well to Fed
Equit y Indices Per formance Returns (U. S. Dollars)
chairman Jerome Powell’s speech at the
virtual Jackson Hole symposium. August Year-to-Date
25%
Data sources: S&P and MSCI
21.6%
Growth equities outperformed value 20%
equities during August as economic
15%
growth expectations were dampened 11.6%
by the COVID-19 Delta variant. This caused 10%
cyclical sectors such as energy to lag;
5% 3.0% 2.6% 2.8%
however, financials—another value-oriented 1.8%
sector—was able to perform well 0%
over the month, with diversified S&P 500 Index MSCI EAFE Index MSCI Emerging
financials posting strong earnings and Data sources: S&P, MSCI Markets Index
revenue levels. The communication
services and information technology
FINANCIALS AND COMMUNICATION SERVICES
sectors both posted strong gains over
August Year-to-Date
the month as well.
Financials 5.0%
30.7%
Comm. Services 4.3%
UK equities saw positive momentum over 3.7%
27.2%
Utilities 10.3%
the month due to the lifting of COVID-19 3.5%
Information Technology 20.7%
related restrictions. According to MSCI, UK Health Care 2.4%
17.6%
SMID cap equities performed well, and the Real Estate 2.1%
29.5%
sector remained a sweet spot for merger Consumer
Data Discretionary
Source: Strategas
1.9%
14.4%
1.7%
and acquisition (M&A) activity. August PMI Materials 18.5%
Consumer Staples 1.4%
reports did not show any growth, however, 9.2%
U.S Style Returns - April
Industrials 0.9%
due to supply chain and labor constraints, 17.2%
Energy -1.5% 33.2%
creating a slight drag to equity
performance. European equities continued -5% 0% 5% 10% 15% 20% 25% 30% 35%
their rebound due to strong economic Data source: FTSE Russell
and fundamental data in the face of the
region’s ongoing reopening. Emerging market (EM) equities continued to be largely
impacted by events in China. Initially, EM equities
The Japanese equity market return was declined 4.5% as the Chinese regulatory crackdown
positive in August. The market responded continued into August. However, other emerging
positively to the announcement that Prime market equities, such as India and Thailand, saw
Minister Yoshihide Suga will step down, positive performance as lockdowns began to ease and
with investors expressing optimism on the tourism began to increase. Indian equities also
possibility of new economic policies. benefited from foreign inflows attributed in part to
Equities also benefited as order trends and compelling growth prospects, accelerating vaccination
capital expenditure plans have improved campaigns, increased economic activity, and liquidity
activity. conditions.
Source: FTSE Russell
4HIGH YIELD AND EM DEBT ARE THE POSITIVE
Fixed Income Cha
P E R F O R M E R S Y E A R -TO - DAT E
Fixed Income Index Returns
10-year Treasury yields rose 6 bps to 1.30%
August Year-to-Date
during the month of August. Interest 5% 4.5%
rate volatility was again elevated as 4%
market participants awaited the Fed’s annual 3%
Jackson Hole symposium, with the 10-year
2%
Treasury yield moving within a 23-bps 1.0% 0.7%
1% 0.5%
range. Falling yields have buoyed
interest-rate sensitive indices, which were 0%
-0.2% -0.2% -0.2% -0.3% -0.2% -0.2%
previously hit by rising rates earlier in 2021. -1% -0.7% -0.6%
-2% -1.4%
The Fed did not announce the beginning of -3%
the taper at the annual Jackson Hole
-4% -3.8%
Economic Policy Symposium. Instead, the Fed
signaled that they are satisfied with recent -5%
BBG U.S. BBG U.S. BBG BBG U.S. BBG U.S. FTSE J.P. Morgan
inflation levels above 2% but noted that there Aggregate Treasury Fixed-Rate Credit Corporate WGBI EMBI
is still slack in the labor market, with much Bond Index Index MBS Index High Yield Index Global
Index Index Diversified
ground needed to satisfy their full
Data sources: Bloomberg, L.P., Lipper
employment mandate. In contrast to
the taper tantrum of 2013, the Fed has been
very intentional in articulating any policy FE D A SS E T P U R C H A S E S CO N C E N T R AT E O N LO W E R
High Yield Bonds on Pace for Record Issuance Volumes Issuance - Billions ($)
changes to the market. CO U P O N M O R TG AG E S
Investment grade corporate credit spreads 60
were flat month-over-month. High yield 43
40
spreads compressed by 11 bps to finish August 30
Rich/Cheap vs. Swaps (bps)
at 3.2%. The bulk of spread compression came 22
20
after the Fed’s Jackson Hole symposium. Year- 5 2
to-date, the high yield upgrade ratio is at a 5- 0
year high, with upgrades
-10
outpacing downgrades by 2.3x. -20 -17 -19
-30 -26 -23
-40 -32 -35
Year-to-date CLO issuance crossed the
$100 billion mark during the month of -60
August, compared to $45 billion this time
last year. Strong demand for bank loans -80 -75
from the CLO market has been matched FN 1.5 FN 2.0 FN 2.5 FN 3.0 FN 3.5 FN 4.0 FN 4.5
FED FOCUS NON-FED FOCUS
by institutional and retail participants, with
over $23.1 billion of net inflows year-to-date. Data source: PIMCO
Institutional and retail bank loan inflows
have come at the expense of high yield P U B L I C R E A L E S TAT E A D D S TO S T R O N G Y E A R -TO - DAT E
funds, which have seen net outflows of $16.3 PERFORMANCE
billion year-to-date. Trailing REIT Per formance by G eography
All U.S. Equity REITs Global Developed Developed Americas
Developed Europe Developed Asia
50%
Real Assets
42.3%
36.1%
40%
34.5%
Real Estate
29.6%
29.3%
29.4%
Nearly every property type posted 30%
22.2%
positive returns in August pushing public
real estate returns close to 30% year-to-date.
15.0%
20%
13.1%
Healthcare and office REITs were the
10.3%
10.1%
9.4%
8.6%
exceptions due to the threat of another wave
7.1%
7.1%
6.7%
6.6%
10%
4.7%
of COVID-19.
3.6%
3.0%
2.2%
2.1%
1.6%
1.4%
1.2%
0%
gust-21
AuAug 2021 Year-to-Date 1 Year 3 Year 5 Year
Data source: Bloomberg, L.P.
5Regional malls were the strongest M A L L S — N O T D E A D Y E T— P O S T S T R O N G G A I N S
property type, returning 6.2% over the U. S. REIT Trailing Per formance by Proper t y Type
month. Retail sales for typical mall tenants Health Care -2.7%
Office -2.0%
have posted strong growth in the first
Diversified 0.0%
seven months of the year relative to the Apartment 0.3%
same period in 2020. Clothing sales Residential 0.7%
climbed 70% versus 2020, and department Single Family 1.1%
store sales rose 21%. Further, regional mall Free Standing 1.6%
REITs have reported strong foot traffic Manufactured Homes 2.3%
figures despite renewed COVID-19 Shopping Center 2.6%
concerns, with Simon, the largest regional Lodging/Resorts 2.7%
Infrastructure 2.9%
mall REIT, reporting foot traffic down only
Retail 3.2%
2% from pre-pandemic levels. Industrial 3.4%
Timber 4.6%
Healthcare ended the month down 2.7%, Data Center 4.6%
perhaps due to the worry that the Self-Storage 5.3%
COVID-19 Delta variant will have a similar Regional Mall 6.2%
impact as the first few waves of the virus, -4% -2% 0% 2% 4% 6% 8%
which slowed care for many non-COVID-19 Data source: Bloomberg, L.P.
ailments. Move-in rates were slowed by the
pandemic, and renewed concerns around
R I G CO U N T S T I C K U P
the Delta variant may continue to impact
W TI Price and U. S. Rig Count
this in coming periods. N
WTI Price Rig Count (Right Axis)
$120 1,200
Natural Resources
$100 1,000
Oil prices fell 7.4% over the month. U.S. rig
counts continued to improve—up 46.0% $80 800
Dollars per Barrel
Number of Rigs
year-to-date—although the recovery in well
development has slowed and activity is $60 600
still markedly below pre-pandemic
levels. $40 400
While new drilling activity has slowed, the $20 200
Energy Information Agency (EIA) has
reported a closing gap between drilled $0 0
and completed wells across major U.S. oil Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21
basins. This drawdown of existing well Data source: Bloomberg, L.P.
inventory may spur further drilling activity
once existing inventories of uncompleted E X PE C T E D CO N S U M P T I O N A PPR OAC H I N G
wells are absorbed. P R E - PA N D E M I C L E V E L S
World Liquid Fuel Consumption
The EIA is still expecting global liquid fuel
Actuals Forecast
demand to hit 100 MBBL/day by the end of 105
2021.
100
Barrels per Day (in Millions)
Infrastructure 95
Midstream energy infrastructure declined 90
amid questions around near-term
demand for energy commodities. The 85
Alerian MLP Index and broader Alerian
Midstream Energy Index ended the month 80
down 2.3% and 1.6%, respectively. Despite
this poor performance, the financial 75
position of most midstream energy
Sep-14
Sep-16
Sep-10
May-11
Sep-12
May-13
Sep-18
Sep-20
May-21
Sep-22
Jan-10
Jan-12
Jan-14
May-15
Jan-16
May-17
Jan-18
May-19
Jan-20
Jan-22
companies has continued to improve, with
share buybacks and deleveraging of Data source: EIA
balance sheets.
6Listed infrastructure returned 2.3% over the
month, as measured by the FTSE Global
Core Infrastructure 50/50 Index. Subsector I N FR A S T R U C T U R E S T R U G G L I N G T H R O U G H S U M M E R ’ S
performance was mixed, with utilities D O G DAYS
performing well due to their defensive Trailing REIT Per formance by G eography
nature. Marine ports were the best- DJ Brookfield Global Infra. Composite Index FTSE Global Infra. Core 50/50 Index
Alerian MLP Total Return Index Alerian Midstream Total Return Index
performing sector, but these names tend Tortoise NA Pipeline Index
to be spread across emerging markets
54.8%
60%
and lack the liquidity to attract significant
43.4%
50%
attention from large asset managers.
37.1%
35.3%
33.4%
40%
28.4%
Diversifying Strategies 30%
21.0%
19.7%
16.0%
20%
11.4%
9.7%
9.0%
Following their first negative month of
6.7%
6.0%
10%
4.3%
2.6%
the year, August marked the return
2.3%
2.3%
1.9%
0.9%
of strong performance for hedge 0%
funds broadly. Hedge funds were able
-1.5%
-1.6%
-2.6%
-2.3%
-5.8%
-10%
to take advantage of global dislocations YTD 1 Year 3 Year 5 Year
Aug 2021
generated by global inflation fears,
Data source: Bloomberg, L.P.
as funds that have demonstrated a
track record of tactical flexibility and
opportunistic monetization approaches HEDGE FUNDS NOW IN DOUBLE-DIGIT RETURN TERRITORY
were able to capitalize on the HFR I Indices Performance Returns (U. S . Dollars)
subsequent risk-on environment.
August Year-to-Date
14%
Hedged equity strategies led 11.9%
12% 11.4%
performance driven by high-beta and 10.0%
long- biased specialty strategies 10%
across healthcare, technology, and 8.0%
8%
energy. Performance was driven by a 6.8%
sharp bounce back in equity markets as 6% 5.3%
investors came to terms with the 4%
drawdowns of prior months.
2% 1.1% 1.0% 1.2%
0.8% 0.5% 0.2%
Event-driven strategies also posted strong 0%
performance, as regulatory concerns HFRI HFRI HFRI HFRI HFRI HFRI
in China died down and spreads in Fund Fund of Event- Relative Macro Equity
Weighted Funds Driven Value (Total) Hedge
largely trafficked merger deals began
Composite Composite
Data source: HedgeFund Research
(Total) (Total) Index (Total)
to show signs of continued Index Index Index Index Index
tightening
Data source: HedgeFund Research
Global macro managers posted mixed
performance. Uncertainty surrounding
domestic and global inflation, the
potential peripheral impact of conflicts in
the Middle East, and the impact of
COVID-19 mutations on the global economic
reopening continued to worry investors and
helped to create the disparate performance.
7IMPO R T A N T D IS C L O S U R E I N F O R M A T I ON
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 sellany 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 August 30, 2021 unless otherwise noted.
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