Similar to last month, the headlines in August were dominated by geopolitical events in Ukraine and Iraq/Syria. Despite this, most investment asset classes performed reasonably well on the back of continued positive economic data from the US. Janet Yellen, the Chair of the US Federal Reserve Board, continued to flag that US interest rates may rise sooner rather than later. Over the month, the volatility of equities (as measured by VIX, which is also known as ‘fear index’) fell to near all-time lows, indicating upbeat sentiment among investors.
The investment returns of the major markets for one and three months to 31 August 2014 are summarised below.
*Estimate at 09/09/2014
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
Overseas equities as measured by the MSCI World ex-Australia Index (hedged into the Australian dollar) increased 2.9% over the month. The unhedged return was 1.7% as the Australian dollar appreciated against most major currencies. Across developed markets the strongest performing countries in local currency terms were the US, Ireland, the Netherlands and Belgium. Of note, the US S&P500 Index reached 2000 for the first time during the month. Emerging markets performed in line with developed markets on an unhedged basis.
Australian equities as measured by the S&P/ASX300 Accumulation Index rose by 0.6%. Small Caps significantly outperformed Large Caps. Telecommunications, Health Care and Energy were the best performing sectors. Materials was the weakest performing sector while Consumer Staples and IT also lagged.
Both Australian and overseas bonds performed well over the month, significantly outperforming the return from cash investments. Long duration bonds and Inflation-linked securities had a stellar month.