3. U.S. Equities:
This was truly a surprise, as the U.S. equity market got off to a very sluggish start in 2014. We were almost certain we would have anemic growth. Instead, the U.S. proved to be the “safe haven” for equity exposure due to a U.S. outlook that was proven strong relative to elsewhere in the world.
Market Realist – The US saw positive fund flows in 2014 due to better relative economic position.
The graph above shows the performance of the SPDR S&P 500 ETF (SPY), which tracks the S&P 500. As we mentioned earlier, the returns of the ETF will be similar to that of the index ex-fees.
SPY gave returns of 12.4% in 2014, and saw record fund flows, as we discussed in part one of the series. Although the first quarter of the year was sluggish in terms of GDP growth, corporate earnings, and equities, the remaining quarters more than made up for the first.
While the GDP growth rate was negative in 1Q14 at -2.1%, the next three quarters saw growth rates of 4.6%, 5.0%, and 2.6%, respectively. Also, 4Q14 corporate earnings were robust with mature tech companies (QQQ), including Apple (AAPL), Google (GOOG), and Microsoft (MSFT), beating estimates.
With the rest of the world, particularly the rest of the developed world, in bad shape, the US is appearing comparatively strong. This fact has drawn funds towards US equity funds.
Although US Treasury yields are stuck at very low levels, they are attractive compared to European and Japanese Treasury bond yields, which means US bond funds could also see inflows. Read on to the next part of the series to find out the implications of this trend on investment strategies in 2015.