Transcript Here

Russell Quarterly
Economic and
Market Review
Unwinding the extraordinary: transitioning from
recovery to expansion
SECOND QUARTER 2013
Important information and disclosures
Please remember that all investments carry some level of risk, including the potential loss of Principal invested. They do
not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring,
attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Diversification does not assure a profit and does not protect against loss in declining markets.
Risks of asset classes discussed in this presentation:
Non-U.S. markets entail different risks than those typically associated with U.S. markets, including currency fluctuations, political and economic instability, accounting changes, and
foreign taxation. Securities may be less liquid and more volatile. If applicable, please see a Prospectus for further detail.
Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected
to have less stability than those of more developed countries. Securities may be less liquid and more volatile than U.S. and longer-established non-U.S. markets. If applicable,
please see the Prospectus for further detail.
Real Asset risks:
Investments in infrastructure-related companies have greater exposure to adverse economic, financial, regulatory, and political risks, including, governmental regulations. Global
securities may be significantly affected by political or economic conditions and regulatory requirements in a particular country.
Commodities may have greater volatility than traditional securities. The value of commodities may be affected by changes in overall market movements, changes in interest rates or
sectors affecting a particular industry or commodity, and international economic, political and regulatory developments.
Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks. Investments in international markets can involve risks
of currency fluctuation, political and economic instability, different accounting standards, and foreign taxation.
Small capitalization (small cap) investments involve stocks of companies with smaller levels of market capitalization (generally less than $2 billion) than larger company stocks (large
cap). Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks. Investors should consider the additional risks involved in
small cap investments.
Large capitalization (large cap) investments involve stocks of companies generally having a market capitalization between $10 billion and $200 billion. The value of securities will
rise and fall in response to the activities of the company that issued them, general market conditions and/or economic conditions.
Defensive style emphasizes investments in equity securities of companies that are believed to have lower than average stock price volatility, characteristics indicating high financial
quality, (which may include lower financial leverage) and/or stable business fundamentals.
Dynamic style emphasizes investments in equity securities of companies that are believed to be currently undergoing or are expected to undergo positive change that will lead to
stock price appreciation. Dynamic stocks typically have higher than average stock price volatility, characteristics indicating lower financial quality, (which may include greater
financial leverage) and/or less business stability.
Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods
in the market.
An Investment Grade is a system of gradation for measuring the relative investment qualities of bonds by the usage of rating symbols, which range from the highest investment
quality (least investment risk) to the lowest investment quality (greatest investment risk).
Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period. It is often considered an indicator of a country's
standard of living.
Russell Investment Group, is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments and is a subsidiary of The Northwestern
Mutual Life Insurance Company.
Copyright © Russell Investments 2013. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written
permission from Russell Investments. It is delivered on an “as is” basis without warranty.
Russell Financial Services, Inc., member FINRA, part of Russell Investments.
First Used: July 2013
RFS 13-10848
p.2
Not FDIC Insured
May Lose Value
No Bank Guarantee
Table of contents
Topic
Page
Economic dashboard
4
Capital markets
5
Equities
7
Commodities
14
Fixed Income
16
Summary
18
p.3
Economic dashboard
Slight increase in
market volatility
Small rise in interest
rates
Below long-term
trend inflation
Positive economic
expansion
http://www.russell.com
Current state as of May 31, 2013.
See appendix for category definitions.
Russell’s Economic Indicators Dashboard charts several key indicators to help investors assess the current “health” of the economic and market trends. Dashboard is updated on the 22nd
of each month.
p.4
Capital markets
25
Periods ending June 30, 2013
Capital Market Returns
U.S. Equity
21.5
Non-U.S. Developed Equity
20
Rate of Return (%)
15
18.6
17.5
Emerging Markets
14.1
U.S. Bonds
15.2
13.5
9.7
Global REITs
10
13.9
7.8 8.0
7.2
Commodities
5
4.9
3.1
2.7
5.2
4.1 3.5
2.0
4.5 5.1
3.8
2.4
0.5
0
-1.5
-5
-2.3
-3.8
-7.4
-10
-0.3
-0.7
-0.6
-2.4
-9.5
-8.0
-8.0
-10.5
-11.6
-15
2Q
YTD
1-Year
U.S. Equity: (Russell 3000® Index) U.S. stock index which includes the
3,000 largest U.S. stocks as measured by market capitalization
Non-U.S. Developed Equity: (Russell Developed ex-U.S. Large Cap
Index) International market index that includes Western Europe, Japan,
Australia and Canada
Emerging Markets: (Russell Emerging Markets Index) Emerging
markets index that includes S. Korea, Brazil, Russia, India and China
U.S. Bonds: (Barclays Agg Bond Index) Broad index for U.S. Fixed
Income market
Global REITs: (FTSE EPRA/NAREIT Index) Index for global publicly
traded real estate securities
Commodities: (Dow Jones-UBS Commodity Index) Broad index of
common commodities
Annualized
3-Years
10-Years
Capital Markets:
› U.S. equity was the only major asset class to finish second quarter
with a positive return and led all asset classes over five years
› Ongoing economic sluggishness in Europe and the Pacific Basin
created a difficult environment for Non-U.S. developed stocks during
the quarter
› Double digit negative returns in Brazil and Turkey highlighted
growing concerns for some of the key emerging economies
› Fixed income markets slumped as interest rates rose 1% over the
course of May and June
› Global REITs posted their first negative quarter since 2011, feeling
the pinch of rising interest rates
› Commodities posted the worst asset class return reflecting muted
global economic expectations
Source: Russell, Barclays, Dow Jones, and FTSE NAREIT.
Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
p.5
5-Years
What worked and what didn’t in 2Q 2013
Russell Tax-Managed
What
didn’t
U.S.
Large work
Cap Equity
Fund:
Equities
What worked
Equities
› Cons Disc +6% / Financials +5%
› Materials -2% / Energy -1%
$0 in capital
› Australia -15%
gain
Fixeddistributions
Income
› Long U.S. Treasuries -6%
since
› Emerging
Markets2000
Debt -5%
› Micro cap +5%
› Brazil -18% / Turkey -14%
› France +4% / Ireland +4%
Fixed Income
› European high yield +2%
› 1-3 Year Aggregate 0%
› U.S. Corporate Credits -3%
Alternatives / Real Assets
Alternatives / Real Assets
› European REITs +2%
› Lean Hogs +9%
› Silver -32%
› Asian REITs -8%
U.S. Equity held on to early gains, other asset classes did not fare as well:
› U.S. Equity
› International Equity
› U.S. Fixed Income
APRIL YTD
12.9%
9.4%
0.9%
JUNE YTD
14.1%
3.1%
-2.4%
Index Legend: Cons Disc– Russell 3000® U.S. Consumer Discretionary; Financials– Russell 3000® U.S. Financial Services; Microcap– Russell Microcap Index; France– Russell Global France
Index; Ireland– Russell Global Ireland Index; Materials – Russell 3000® Materials & Processing Index; Energy– Russell 3000® Energy Index; Brazil– Russell Global Brazil Index; Turkey-Russell
Global Turkey Index; Australia-Russell Global Australia Index; European HY-Barclays European High Yield Index; 1-3yr Aggregate– Barclays 1-3 Year Aggregate Index; Long U.S. Treasury–
Barclays Long U.S. Treasury Year Index; Emerging Markets Debt– Barclays Emerging Markets Debt Index; U.S. Corporate Credits– Barclays U.S. Corporate Index; Lean Hogs and Silver
represent the sub-index of the Dow Jones UBS Commodity Sub-index Series; European REITs– FTSE/EPRA NAREIT Developed Europe Sector; Asian REITs – FTSE/EPRA NAREIT Developed
Asia Sector.
p.6
Overreaction to rising rates
Herd selling on high-yielding assets
› REITs, utilities and other historically highyielding assets were relatively attractive in
low rate environment
› As the yield increased on U.S. Treasury
bonds, this stretch for yield left investors
vulnerable to a pullback
Yield increased from 1.6% to 2.6%
2.7%
3,900
3,700
2.5%
2.3%
3,500
p.7
2.1%
3,300
1.9%
3,100
1.7%
May 8 – June 24:
1.5%
2,900
Global REITs Index Value
Yield on 10-Year U.S. Treasury Bond
May 2 – June 25:
Global REITs down 15%
1.3%
2,700
Yield on 10-Year Treasury
Global REITs
Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
Yield on 10-Year U.S. Treasury – Yahoo Finance; Global REITs – FTSE EPRA/NAREIT Developed Real Estate Index.
p.7
Tapering, not tightening
› Improvements in the economy’s health are leading the Fed to consider tapering Quantitative
Easing, so long as “the outlook for the labor market has improved substantially in a context
of price stability”1
U.S. Equities2, Housing and Employment
(March 2009 – June 2013)
240
QE1,
Equities +53%
QE2,
Equities +13%
Operation Twist,
Equities +28%
220
200
180
Operation Twist
cont’d + QE3,
Equities +14%
Russell 3000® Index
up 127% cumulatively
since start of QE
160
140
120
100
80
Russell 3000 Index rebased to 100
1
New housing starts, rebased to 100, in thousands
Total nonf arm payroll, in millions
FOMC Press release, June 19, 2013 / 2 Represented by Russell 3000® Index
Sources: U.S. Equities: Russell 3000® Index with dividends reinvested, Russell Investments; Housing: New residential construction, seasonally adjusted, U.S. Census Bureau;
Employment: Total nonfarm payroll, seasonally adjusted, U.S. Bureau of Labor Statistics
p.8
Federal Reserve keeping short-term rates low until
unemployment nears 6.5%
Average Monthly Job Growth Needed to Achieve 6.5% Unemployment*
400,000
The economy would
need to add 168,000
jobs/month through
June 2015 to achieve
6.5% unemployment
350,000
Monthly Number of Jobs
350,000
300,000
228,000
250,000
188,000
200,000
168,000
155,000
170,000/month
Russell forecast
150,000
100,000
50,000
0
Dec 2013
June 2014
Dec 2014
June 2015
Dec 2015
Inflation outrunning cash as Federal Reserve keeps rates low:
If so, negative real returns for cash are likely into 2015
* Federal Reserve Bank of Atlanta
p.9
Short-term pullbacks are common…
Calendar-year U.S. Equity Returns
and Intra-year Declines
32
32
30
20 22
10%
May 21–June 24:
Down 6%
5%
0%
10
38
33
30
33
22
18
20
Return (%)
15%
Despite annual pullbacks, in 27 of
the last 33 years U.S. equity
markets finished in positive territory
50
40
Russell 1000® Index up 14% f or year
20%
Russell 1000® Index
% Change
And should not distract a long-term investor
2013 YTD Pullback Illustration
30
27
21
17
3
6
16
16
15
11
9 10
5
28
6
2
0
0
-10
-20
-5
-15
-18 -16
-7
-12
-7 -7
-7 -9
-50
-3
-6 -5 -8
-8 -10
-10
-20
-30
-40
-4
-33
-8
-12
-20
The average annual pullback
(peak-to-trough)
from 1980-2012 was 14.5%
-12
-18
-13
-8 -7 -8 -10
-22
-30
-20
-27
-33
-60
Russell 1000® Index
-10
-16
-38
-49
Maximum peak-to-trough during the year
Source: Russell. Returns calculated with dividends included. Maximum peak-to-trough represents the return difference between the largest peak-to-trough of the calendar year.
Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
p.10
Future returns depend on starting point prices
U.S. Equity Market
Non-U.S. Developed Equity Market
P/E Quartiles and
10-Year Annualized Return
P/E Quartiles and
10-Year Annualized Return
20.0
18.0
16.0
14.6
14.0
11.8
12.0
10.0
6.9
8.0
6.0
7.7
16.8 P/E
on
3/31/13
4.0
2.0
0.0
7.7 - 11.2
11.2 - 15.8
15.8 - 18.7
18.7 - 28.5
Historical P/E Quartile Ranges
1926 – 1Q 2013
Lower P/E – Higher Return
Average Annualized Ten-Year Return (%)
Average Annualized Ten-Year Return (%)
Current equity valuations suggest fair long-term equity results
20.0
18.0
18.0
16.0
14.0
12.0
9.1
10.0
7.5
8.0
17.8 P/E
on
3/31/13
6.0
4.0
5.9
2.0
0.0
9.1 - 15.5
15.5 - 20.2
20.2 - 24.7
24.7 - 28.3
Historical P/E Quartile Ranges
1978 – 1Q 2013
Higher P/E – Lower Return
Sources: U.S. Equity data (1926 – 1Q 2013) from Robert Schiller’s U.S. Equity Market Data and Russell 3000 ® Index; Price/Earning Ratios based upon 12-month trailing earnings;
International Equity data from MSCI EAFE and Russell Index series (1978 – 1Q 2013).
*Earnings not reported yet for 2Q 2013
p.11
Improving outlook for Europe
Citigroup Eurozone Economic Surprise Index (YTD 2013)
100
Merkel reaffirmed
need for EU
austerity
Greek riots on
national
independence day
50
Merkel shifted from
austerity towards
more stimulus
Corruption
scandal in Spain
0
January
February
March
May
June
Cyprus
bailout
-50
-100
April
Political
deadlock
in Italy
Investing in Europe
› European equities returned 2.6% YTD vs. 14.1% for U.S.,
reflecting economic challenges
› Recent European P/E ratio of 14.6 showed modest
undervaluation relative to U.S. P/E ratio of 15.8
Sentiment in Europe
› In first quarter,
economic data was
better than expected.
In second quarter, still
weak economic
results trailed rising
expectations. June
saw expectations
align with reality.
› Challenges remain,
but Europe appears
to have reached an
important inflection
point that heralds an
improving outlook.
Source: Factset, Bloomberg, and Wall Street Journal. Europe P/E and return data based on MSCI Europe Index. U.S. P/E and return data based on Russell 3000® Index.
p.12
Reaffirming the growth story in emerging markets
Russell Emerging Markets Index Country Performance 2Q 2013
Emerging Markets
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
Return
Brazil
Russia
India
China
-17.5
-9.6
-6.7
-4.8
›
The Russell Emerging
Markets Index was down
-7.3% for the quarter
›
BRIC countries made up
36.8% of the index and
had a significant impact
on performance
›
Economic growth slowed
in the BRIC countries but
are still strong relative to
developed economies
›
Opportunities remain
given strong growth
rates
Source: Russell, total return as of 6/28/2013.
April 2013: Revised IMF GDP Growth Projections
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
2013
2014
Brazil
Russia
India
China
Emerging
Markets
United
States
Europe
Japan
2013
3.5%
3.7%
5.9%
8.1%
5.3%
1.9%
-0.3%
1.6%
2014
3.0%
3.4%
5.7%
8.0%
5.7%
3.0%
1.1%
1.4%
Source: International Monetary Fund (IMF)
p.13
Index returns represent past performance, are not a guarantee
of future performance, and are not indicative of any specific
investment. Indexes are unmanaged and cannot be invested in
directly.
Commodities: long-term benefits, short-term challenges
Long-term benefits:
› Diversification:
Low historical and
forecasted correlation
with equities and bonds
Relationship Between Commodity Prices and Inflation
6
60%
4
40%
2
20%
0
0%
-2
› Historical offset to
inflation
-4
-6
-20%
Consumer Price Index all items YOY change (%)
-40%
DJ-UBS Commodity Index YOY change (%)
-60%
Short-term challenges:
› Supply and demand
factors driving prices
› Supply:
Higher inventories
20
Commodity Index Performance (%)
15
Annualized data as of June 30, 2013
10
5
0
-5
› Demand:
Decline in demand for
metals
-10
DJ-UBS
Energy
DJ-UBS
Industrial
Metals
DJ-UBS
Livestock
DJ-UBS
Precious
Metals
-15
-20
-25
-30
p.14
DJ-UBS
Agriculture
1-Year
5-Year
10-Year
DJ-UBS
Commodity
Index
Gold loses its luster as economy improves and real
interest rates climb
2,000
3.50
1,800
3.00
1,600
› When real rates are low, the
opportunity costs of holding
gold tend also to be low1
2.50
Gold Spot Price
2.00
1,200
1.50
1,000
1.00
800
0.50
600
Gold Spot
200
Real Interest Rates
0
Jul-03
Dec-03
May-04
Oct-04
Mar-05
Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09
Mar-10
Aug-10
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
400
0.00
-0.50
-1.00
Real Interest Rates
1,400
› Strong, negative relationship
between real interest rates
and gold prices
demonstrates demand for
capital
› In the past six months,
capital has found its way
to more productive uses
› Gold’s decline is a positive
portend for less defensive
investments
Real interest rates as reflected by Treasury inflation-indexed long-term average yields. Data source: Federal Reserve Bank of St. Louis (FRED). Gold spot prices from Bloomberg.
1 The relationship between low real interest rates and equity returns is described here (http://www.economist.com/news/finance-and-economics/21564845-low-real-interest-rates-are-usually-badnews-equity-markets) and here (http://www.economist.com/blogs/buttonwood/2013/02/investing). The theoretical relationship between low real interest rates and gold prices is described in a paper
by Barsky and Summers that can be downloaded here: http://ideas.repec.org/p/nbr/nberwo/1680.html
p.15
The unnecessary stampede
Rising rates don’t undermine the role of bonds
40.0
33.6
Annualized Return (%)
35.0
30.0
25.0
20.6
20.0
15.5
13.7
15.0
10.0
5.0
0.0
0.7 0.1
1.2 0.1
0.0
-5.0
-10.0
-0.1
-0.4
-4.6
Worst 1-Year
Worst 3-Years
Worst 5-Years
Worst 10-Years
10-Year
Treasury Yield
Increased 1.4%
7/58 – 6/59
10-Year
Treasury Yield
Increased 1.63%
8/54 – 7/57
10-Year
Treasury Yield
Increased 0.66%
6/48 – 5/53
10-Year
Treasury Yield
Increased 0.58%
6/43 – 5/53
Bonds
Cash
Equity return during "worst" bond period
Worst: The lowest 12-month, 36-month, 60-month, and 120-month return horizon for these markets from 1926–2012.
Sources: U.S. Equities– Ibbottson & Associates S&P 500® Composite 1926–1978, Russell 3000® Index 1979–2012, Bonds– Ibbottson & Associates Intermediate Government Bond Index 1926–
1976, Barclays Intermediate Government Bond Index 1977–2012, Cash– Ibbottson & Associates U.S. 30-day Treasury Bill Index.
p.16
Return to the ordinary
Low single digit bond returns are normal
U.S. 10-Year Treasury Yield and Rolling Ten-Year Bond Returns
10-Year Treasury Yield % / 10-Year Int Gov Bond Return (%)
18.0
16.0
Future bond returns
have historically
tracked closely to
yield levels at time
of purchase
14.0
12.0
10.0
The June 30, 2013 market
yield was ~2.5% suggesting
modest single-digit returns
for the 10-year horizon
8.0
6.0
4.0
2.0
0.0
1926
1931
1936
1941
1946
1951
1956
1961
10-Year
Treasury
Yield
10
Yr Treasury
Yield
1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
IntermediateGov
Gov Bonds
Bonds (Ten-Year
(10-Year Return)
Intermediate
Return)
Sources: 10-Year Treasury Yield: U.S. Treasury; Intermediate Gov Bonds: Ibbottson & Associates Intermediate Government Bond Index 1926–1976, Barclays Intermediate Government Bond
Index 1977–2012.
p.17
Diversification: slow and steady to your goal
Don’t let short-term returns potentially dictate long-term investment decisions
Market Returns as of June 30, 2013
Short-term performance does
not reflect long-term results
20
14.1
15
13.9
10
6.9
5
2.1
7.8
8.0
4.5
3.1
5.1
2.4
2.0
0
-2.4
-5
-8.0
-10
-10.5
-15
YTD
10-Year
(Annualized)
Balanced Index Portfolio
U.S. Equity
Non-U.S. Equity
EM Equity
U.S. Bonds
REITs
Commodities
Balanced Index Portfolio: 25% Russell 3000® Index / 20% Russell Developed Large Cap ex-U.S. Index / 10% Russell Emerging Markets Index / 35% Barclays Capital Aggregate Index / 5% FTSE
EPRA Developed REIT Index / 5% Dow Jones UBS Commodity Index; U.S. Equity: Russell 3000® Index; Non-U.S. Equity: Russell Developed Large Cap ex-U.S. Index; EM Equity: Russell
Emerging Markets Index; U.S. Bonds: Barclays Capital Aggregate Index; REITs: FTSE EPRA REIT Index; Commodities: Dow Jones UBS Commodity Index.
Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
p.18
Important information and disclosures
International/Global:
International/Global investing value may be significantly affected by political or economic conditions and regulatory requirements in a particular country.
Investments in non-U.S. markets can involve risks of currency fluctuation, political and economic instability, different accounting standards and foreign taxation.
Such securities may be less liquid and more volatile. Investments in emerging or developing markets involve exposure to economic structures that are generally
less diverse and mature, and political systems with less stability than those in more developed countries.
Bonds:
Bond investors should carefully consider risks such as interest rate, credit, repurchase and reverse repurchase transaction risks. Greater risk, such as increased
volatility, limited liquidity, prepayment, nonpayment and increased default risk, is inherent in portfolios that invest in high-yield ("junk") bonds or mortgage backedsecurities, especially mortgage-backed securities with exposure to subprime mortgages. Investment in non-U.S. and emerging market securities is subject to the
risk of currency fluctuations and to economic and political risks associated with such foreign countries.
Growth:
Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short-term or have grown consistently over the long-term.
Such investments may provide minimal dividends which could otherwise cushion stock prices in a market decline. A stock’s value may rise and fall significantly
based, in part, on investors' perceptions of the company, rather than on fundamental analysis of the stocks. Investors should carefully consider the additional
risks involved in growth investments.
Value:
Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value.
Such investments are subject to risks that the stocks’ intrinsic values may never be realized by the market, or, that the stocks may turn out not to have been
undervalued. Investors should carefully consider the additional risks involved in value investments.
p.19
Index definitions
Barclays Aggregate Bond Index: An index, with income
reinvested, generally representative of intermediate-term
government bonds, investment grade corporate debt
securities, and mortgage-backed securities. (specifically:
Barclays Government/Corporate Bond Index, the AssetBacked Securities Index, and the Mortgage-Backed
Securities Index).
Barclays Emerging Market Debt Index: An unmanaged
index that tracks total returns for external-currencydenominated debt instruments of the emerging markets.
Barclays Global High Yield Index: An unmanaged index
considered representative of fixed rate, noninvestment-grade
debt of companies in the U.S., developed markets and
emerging markets.
Barclays U.S. Treasury Long Index: An index that includes
all Treasuries in the Barclays U.S. Aggregate Index that
mature in 10 years or more.
Citigroup Economic Surprise Index: Calculates the
weighted historical standard deviations of data “surprises”
(i.e., actual economic data releases vs. Bloomberg survey
median). A positive value of the Economic Surprise Index
suggests that economic releases have, on balance, beat
consensus expectations.
Dow Jones Industrial Average: A price weighted average
of 30 significant stocks traded on the New York Stock
Exchange and the Nasdaq. The DJIA was invested by
Charles Dow back in 1896.
Dow Jones UBS Commodity Index: Composed of futures
contracts on physical commodities. Unlike equities, which
typically entitle the holder to a continuing stake in a
corporation, commodity futures contracts normally specify a
certain date for the delivery of the underlying physical
commodity. In order to avoid the delivery process and
maintain a long futures position, nearby contracts must be
sold and contracts that have not yet reached the delivery
period must be purchased. This process is known as "rolling"
a futures position.
Dow Jones UBS family of sub-indexes: Represents the
major commodity sectors within the broad index: Energy
(including petroleum and natural gas), Petroleum (including
crude oil, heating oil and unleaded gasoline), Precious
Metals, Industrial Metals, Grains, Livestock, Softs, Agriculture
and ExEnergy. Also available are individual commodity subindexes on the 19 components currently included in the DJUBSCI℠, plus brent crude, cocoa, feeder cattle, gas oil, lead,
orange juice, platinum, soybean meal and tin.
FTSE NAREIT: An Index designed to present investors with
a comprehensive family of REIT performance indexes that
span the commercial real estate space across the U.S.
economy, offering exposure to all investment and property
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sectors. In addition, the more narrowly focused property
sector and sub-sector indexes provide the facility to
concentrate commercial real estate exposure in more
selected markets.
performance of the world's largest investable securities,
based on market capitalization, excluding securities in the
Russell 3000®. The index includes approximately 7,000
securities and covers 61% of the investable global market.
FTSE EPRA/NAREIT Developed Index: A global market
capitalization weighted index composed of listed real estate
securities in the North American, European and Asian real
estate markets.
Russell Microcap Index: Measures the performance of the
microcap segment of the U.S. equity market. It makes up
less than 3% of the U.S. equity market. It includes 1,000 of
the smallest securities in the Russell 2000® Index.
Ibbottson & Associates S&P 500® Composite with
dividends reinvested. (S&P 500®, 1957-Present; S&P 90,
1926-1956)
MSCI EAFE (Europe, Australia, Far East) Index: a free
float-adjusted market capitalization index that is designed to
measure the equity market performance of developed
markets, excluding the U.S. and Canada.
The S&P 500® Index is a free-float capitalization-weighted
index published since 1957 of the prices of 500 large-cap
common stocks actively traded in the United States. The
stocks included in the S&P 500® are those of large publicly
held companies that trade on either of the two largest
American stock market exchanges: the New York Stock
Exchange and the NASDAQ.
Russell 1000® Index: Measures the performance of the
large-cap segment of the U.S. equity universe. It is a subset
of the Russell 3000® Index and includes approximately 1000
of the largest securities based on a combination of their
market cap and current index membership. The Russell 1000
represents approximately 92% of the U.S. market.
S&P Global Infrastructure Index: Provides liquid and
tradable exposure to 75 companies from around the world
that represent the listed infrastructure universe. To create
diversified exposure across the global listed infrastructure
market, the index has balanced weights across three distinct
infrastructure clusters: Utilities, Transportation, and Energy.
Russell 1000® Defensive Index: Subset of top 1000 U.S.
equities with companies that demonstrate less than average
exposure to certain risk. (lower stock price volatility, higher
quality balance sheets, stronger earnings profile).
Russell 1000® Dynamic Index: Subset of top 1000 U.S.
equities with companies that demonstrate than average
exposure to certain risks. (higher stock price volatility, lower
quality balance sheets, uneven earnings profile).
Russell 3000® Index: Index measures the performance of
the largest 3000 U.S. companies representing approximately
98% of the investable U.S. equity market.
Russell Developed ex-U.S. Large Cap Index: Offers
investors access to the large-cap segment of the developed
equity universe, excluding securities classified in the U.S.,
representing approximately 40% of the global equity market.
This index includes the largest securities in the Russell
Developed ex-U.S. Index.
Russell Emerging Markets Index: Index measures the
performance of the largest investable securities in emerging
countries globally, based on market capitalization. The index
covers 21% of the investable global market.
Russell Global Index: Measures the performance of the
global equity market based on all investable equity securities.
All securities in the Russell Global Index are classified
according to size, region, country, and sector, as a result the
Index can be segmented into thousands of distinct
benchmarks.
Russell Global ex-U.S. Index: Index measures the
U.S. Material & Processing: Within the Russell 3000®,
those companies that extract or process raw materials, and
companies that manufacture chemicals, construction
materials, glass, paper, plastic, forest products and related
packaging products. Metals and minerals miners, metal alloy
producers, and metal fabricators are included.
U.S. Small Cap: Within the Russell 2000®, small
capitalization investments involve stocks of companies with
smaller levels of market capitalization (generally less than $2
billion) than larger company stocks (large cap).
U.S. Small Cap Financials: Sector within the Russell 2000®
Index that consists of companies that provide financial
services including banking, finance, life insurance, and
securities brokerage, and services companies.
U.S. Technology: Within the Russell 3000, those companies
that serve the information technology, telecommunications
technology and electronics industries.
U.S. Utilities: Within the Russell 3000, those companies in
industries heavily affected by government regulation, such as
electric, gas and water utilities. Also includes companies
providing telephone services, as well as companies that
operate as independent producers or distributors of power.
Economic recovery dashboard definitions
Market Indicators
CORPORATE DEBT (OAS) – Option Adjusted Spread is a measurement tool for evaluating yield differences between similar-maturity
fixed-income products with different embedded options. The OAS employed in the dashboard measures the difference between interest
rates for similar-maturity investment-grade corporate bonds and treasury bonds and is viewed as a gauge of credit spreads.
MARKET VOLATILITY(VIX) – CBOE VIX (Chicago Board Options Exchange Volatility Index) measures annualized implied volatility as
conveyed by S&P 500 stock index option prices and is quoted in percentage points per annum. For instance, a VIX value of 15 represents
an annualized implied volatility of 15% over the next 30 day period. The VIX measures implied volatility, which is a barometer of investor
sentiment and market risk.
INTEREST RATES – The spread between 3 month Treasury bill yields and 10 year Treasury note yields measures the market outlook for
future interest rates. A normal or upward-sloping yield curve, can imply that investors expect the economy to grow and inflation to eat into
asset returns. They thus demand a higher yield for long-term Treasuries. An inverted yield curve has often been an indicator of coming
recessions, but not always. For example, reduced inflation expectations could cause the yield curve to flatten.
MORTGAGE DELINQUENCIES – Residential Mortgage Delinquencies measure delinquency percentages for residential real estate loans
secured by one- to four-family properties. It includes home-equity lines of credit. Delinquent loans represent those loans that are past due
30 days or more and are still accruing interest, as well as loans in non-accrual status.
Economic Indicators
CORE INFLATION (PCE PI) – The core Personal Consumption Expenditures Price Index (PCE PI) measures the average price increase
for American consumers on an annualized basis. It excludes food and energy prices, which tend to be volatile from month-to-month. It
also allows for consumer substitution of more expensive goods for cheaper goods, which the Consumer Price Index (CPI) does not. It is
the preferred lagging inflation measure of the Federal Reserve.
EMPLOYMENT GROWTH (NF PAY) – The NF PAY (Non-Farm Payroll) measures the number of jobs added or lost in the economy over
the previous month, not including jobs related to the farming industry due to its seasonal hiring.
CONSUMER SPENDING (PCE) – PCE (Personal Consumption Expenditures) measures the value of goods and services purchased by
individual consumers, families and the nonprofit institutions serving them. It consists mostly of new goods and services purchased by
individuals from businesses. It excludes purchases of residential structures by individuals and buildings or equipment used by nonprofit
institutions serving individuals.
ECONOMIC EXPANSION (GDP) – GDP (Gross Domestic Product) measures the total market value of a nation’s output of goods and
services during a specific time period. It is usually measured on a quarterly basis. Current GDP is based on the current prices of the
period being measured. Nominal GDP growth refers to GDP growth in nominal prices (unadjusted for price changes). Real GDP growth
refers to GDP growth adjusted for price changes. Calculating Real GDP growth allows economists to determine if production increased or
decreased, regardless of changes in the purchasing power of the currency.
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“Russell,” “Russell Investments,” “Russell 1000,” “Russell 2000,” and “Russell 3000”
are registered trademarks of the Frank Russell Company.
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