Apologies for my absence last week – I was gainfully ensconced in wintry Toronto for an AltFi event.
This week I have three quick snapshots that I think talk to a bigger story – which is that despite the current sense of gloom. equities might rebound hard.
First up index firm S&P Dow Jones just released an interesting research piece by Jodie Gunzberg, MD of equities which showed that mid-cap stocks actually outperformed in November. During the month, the S&P 400 gained 2.9% versus 1.8% from the S&P 500 and 1.4% from the S&P SmallCap 600. In mid-caps, 9 of 11 sectors were positive, while 8 of 11 large-cap sectors gained and 6 of 11 small-cap sectors gained.
This isn’t the first time that mid caps have outperformed, of course. The S&P MidCap 400 outperformed the S&P 500 by 38% from 1991-1993, 81% from 2000-2005 and by 24.1% in 2007-2010. Not only were the premiums big, but in the latter two times, the returns of the S&P 500 were negative 15.0% and 11.3%, respectively, while the S&P MidCap 400 gained 66.0% and 12.8%, respectively. Intriguingly mid-caps also displayed lower volatility than large caps. The last November when this happened occurred in 2007
According to Gunzberg, these numbers give us hope that equities might pull out of their recent funk. She reckons that “Equities historically perform well on average in December with every size, style and sector gaining. But mid-caps have done best. If trading tensions ease, helping growth and pushing the dollar down, mid-caps may be best positioned to perform best based on historical sensitivity. Mid-caps gain most from a 1% dollar drop, rising on average 3.2% versus 2.6% for large-caps. Oftentimes, the falling dollar acts as a catalyst for new international growth and propels returns beyond the mature large-caps.”
Deutsche also put out a note last week looking at ETF flows, which also suggests that we could see normalization in fund flows. According to Deutsche’s latest ETF Flows data listed exchange-traded funds saw a total inflow of $45bn for the month ($261bn YTD). November fund flow ranked as the second largest monthly inflow YTD- signaling strong investor appetite for year-end positioning. At the same time, secondary trading activity normalized to $2.2T turnover versus the $3T in October.
It’s also worth noting that fixed income flows also rebounded in November, recording the second largest monthly inflow YTD. Investors increased flows by +$14bn last month ($80bn YTD). Fixed income flows remained US-centric with the majority of inflows to US exposure. Investors added $13bn to US bond funds last month. Followed by global ($769mn) and emerging market ($470mn) fixed income funds. Within international focused funds, sovereign debt and aggregate funds recorded notable inflows.
Last but by no means least this snippet caught my eye from retail precious metals expert BullionBypost. Last week reported that “for the first time in nearly 20 years, palladium has overtaken gold to become the most valuable precious investment metal on the market. The milestone occurred yesterday evening, and by this morning palladium was around £15 per ounce higher than gold, flipping the gold-palladium ratio. Demand for palladium has been strong from the automotive industry, even despite slowing sales figures globally, and a lack of supply has helped prices grow rapidly this year. Palladium gained £19.61 per ounce in the last 24 hours alone but has gained £239.08 per ounce in the past year”.