Performance

Performance background

Performance

Keeping clients and contacts informed about our investment approach and performance reflects Hanseatic’s longstanding commitment to transparency and an open, candid dialogue with our clients.

For more detailed information about our investment strategies and performance, please .

For a copy of our GIPS® presentation, click here.

Disclosure

Performance results are based on estimates. For gross and net performance results, see performance table. Commentary section is based on gross performance results only for better comparison to benchmark data. Although the information contained in the commentary sections have been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. Past performance is not necessarily indicative of future results. Different types of investments involve varying degrees of risk.

Click to download

SECOND QUARTER 2019

Hanseatic Market Commentary

Stocks performed well in the second quarter, up about 3.4% for the average U.S. stock fund. But the ending gain belies the market’s roller coaster path over the course of the quarter: up in April, down sharply in May and then a strong June rally that took the S&P 500 to new all-time highs.

Looking back, the market’s behavior from a psychological standpoint was a bit paranoid. In April, things were going well for investors, particularly after the chaos in the previous two quarters. But the tenor of the market changed dramatically in May when the disappointing news about the U.S.-China trade talks erased the optimism that had been priced-in during the April rally. Instead, the market became focused on the impact of tariffs on consumers and business confidence. Then in June, things changed again as the market arrived at a consensus that the Fed would save everything.

Investors, perhaps wary of the volatility over the past eighteen months or the length of the bull market, continue to move their money to the haven of bond funds rather than stocks. A net of $97 billion was put into bond-focused funds during the second quarter according to Investment Company Institute estimates. In contrast, U.S stock funds had an outflow of nearly $19 billion.

One of the primary reasons we continue to be positive about the stock market for the months ahead is that in addition to our model work, there is no evidence from a macroeconomic viewpoint that we are close to recession. For instance, the Conference Board’s Leading Economic Index reached a new uptrend high in May. This index fluctuates during an economic expansion, but the final peak has been at least 7 months before the next recession in the past 50 years. Other economic indicators with lead times before the onset of a recession include retail sales, unemployment claims, and credit spreads. All of these indicators are positive in the sense that there is no evidence of 2019 recession risk. Housing has been the primary macro concern. In the past 50 years, a median of 28 months has lapsed between new home sales expansion and the start of the next recession; so far the cyclical high was 19 months ago.

Why does any of this matter for the stock market? It is because recessions almost always lead to bear markets, and bear markets which occur outside of recession, e.g. 1987, are rare. So, understanding the probabilities associated with a near term recession is complementary to our hedge model work.

Fed policy, as always, is a key element in the outlook for stocks. Following the near-bear market in last year's fourth quarter, the Fed moved from hiking rates in December 2018 to a more "patient" stance in January to its current position of signaling that a rate cut is probable at the July 31st FOMC meeting. The Fed’s change from a hawkish to a dovish stance in such a short period of time has been rather remarkable. This shift has been driven by strong evidence of low and relatively stable inflation, weakening global economic growth and concerns that tariff wars could further weaken the global economy.

U.S.-China trade conflicts continue to pose significant risks to both the U.S. and the global economy. Talks are resuming and we continue to believe that economic self-interest will ultimately lead to real progress at the negotiating table. However, the issues are complex: the Huawei issue remains unresolved after the G20 meeting between Trump and Xi and the current round up is unlikely to lead to a final resolution. Trade uncertainty remains the primary risk for the equity markets

We continue to believe that the economic, monetary and earnings environment is positive for stocks and has the potential to support further gains over the second half of 2019. Valuations remain favorable for U.S. stocks. The S&P 500’s forward 12-month price-to-earnings ratio is within historic norms, and valuations relative to interest rates and inflation remain attractive. It is also important to note that stocks are currently historically inexpensive relative to bonds.

We do believe that large capitalization stock measures such as the S&P 500 are extended following the strong June rally and are potentially vulnerable to near term disappointments on the trade or earnings front, or periodic bouts of renewed volatility. This is not to say that these stocks can’t continue the June rally near term, but further upside progress would put the S&P 500 in an overbought and relatively high risk position. We believe that the seasonally strong fourth quarter will likely offer better opportunities for further appreciation in stocks.

HANSEATIC QUARTERLY STRATEGY PERFORMANCE AND ATTRIBUTION

LARGE CAP EQUITY (LG)

The Large Cap Equity strategy return was up 4.47%, the Russell 1000 Growth benchmark return was up 4.64%. The strategy’s second quarter underperformance was derived from relative underperformance in seven of eleven sectors. Industrials, Financials, and Materials contributed 0.92%, 0.11%, and 0.09% respectively to the relative performance. Communication Services, Staples, Technology, Healthcare, and Real Estate detracted 0.51%, 0.29%, 0.15%, 0.12%, and 0.10% respectively from relative performance. Consumer Discretionary and Energy detracted a combined 0.13% from relative performance. Utilities had no impact. The portfolio is overweight Consumer Discretionary and underweight Communication Services.

ALL CAP GROWTH EQUITY (AG)

The All Cap Growth Equity strategy return was up 5.96%, the Russell 3000 Growth benchmark return was up 4.50%. The strategy’s second quarter outperformance was derived from relative outperformance in five of eleven sectors. Healthcare, Staples, Materials, Consumer Discretionary, and Energy contributed 1.28%, 0.81%, 0.35%, 0.28%, and 0.05% to relative performance. Technology, Industrials, Communication Services, Real Estate, and Financials detracted 0.63%, 0.39%, 0.19%, 0.07%, and 0.04% from relative performance. Utilities were flat. The portfolio is overweight Staples and underweight Communication Services, Healthcare, Industrials, Tech, and Real Estate.

ALL CAP GROWTH CONCENTRATED EQUITY (CD)

The All Cap Growth Concentrated Equity strategy return was up 4.46%, the Russell 3000 Growth benchmark return was up 4.50%. The strategy’s second quarter underperformance was derived from relative underperformance in six of eleven sectors. Materials and Communication Services contributed 1.19% and 0.55% to relative performance during the quarter. Consumer Staples, Technology, Healthcare, and Industrials detracted 0.71%, 0.36%, 0.31%, and 0.21% from relative performance. Consumer Discretionary and Real Estate detracted a combined 0.20% from relative performance. Financials contributed 0.01% while Energy and Utilities were flat. The portfolio is overweight Materials and underweight Industrials, Consumer Discretionary, Healthcare, Technology and Real Estate.

ALL CAP TAX EFFICIENT EQUITY (TE)

The All Cap Tax Efficient Equity strategy return was up 0.80%, the Russell 3000 benchmark return was up 4.10%. The strategy’s second quarter underperformance was derived from relative underperformance in eight of eleven sectors. Notable sectors were Healthcare, Materials and Real Estate contributing 1.23%, 0.48% and 0.48% respectively to relative performance. Technology, Financials, Energy, Industrials, and Consumer Staples detracted 2.57%, 1.13%, 0.51%, 0.48% and 0.26% respectively to relative performance. Consumer Discretionary, Communication Services and Utilities detracted a combined 0.53% from relative performance. The portfolio is overweight Consumer Discretionary, Technology, and Healthcare and underweight Financials, Energy, Consumer Staples and Industrials.

MID CAP EQUITY (MC)

The Mid Cap Equity strategy return was up 2.72%, the Russell Midcap Growth benchmark return was up 5.40%. The strategy’s second quarter underperformance was derived from relative underperformance in seven of eleven sectors. Industrials, Technology and Materials contributed 0.43%, 0.37% and 0.26% respectively to relative performance. Utilities were flat during the quarter. Healthcare, Consumer Discretionary, and Communication Services detracted 1.83%, 1.22% and 0.26% from relative performance. Financials, Real Estate, Consumer Staples, and Energy detracted a combined 0.43% from relative performance. The portfolio is overweight Technology, Consumer Staples, and Utilities and is underweight Consumer Discretionary, Communication Services, and Healthcare.

SMALL CAP EQUITY (SC)

The Small Cap Equity strategy return was up 3.49%, the Russell 2000 Growth benchmark return was up 2.75%. The Small Cap Equity strategy’s second quarter outperformance was derived from relative outperformance in five of eleven sectors. Technology, Healthcare, Utilities, Consumer Discretionary, and Financials contributed 1.80%, 1.28%, 0.61%, 0.44% and 0.14% respectively to relative performance. Real Estate was relatively flat. Industrials, Communication Services, Consumer Staples, Materials and Energy detracted 2.14%, 0.59%, 0.55%, 0.19%, and 0.06% from relative performance. The portfolio is overweight Technology and Utilities and underweight Industrials, Healthcare, Real Estate, and Materials.

GROWTH & INCOME EQUITY (GI)

The Growth & Income Equity strategy return was up 3.72%, the S&P 500 Total Return Index return was up 4.30%. The strategy’s second quarter underperformance was derived from relative underperformance in six of eleven sectors. Notable were Technology, Materials, and Energy contributing 0.81%, 0.49%, and 0.23% respectively to relative performance. Healthcare and Utilities contributed modestly with 0.09% and 0.06%. Consumer Discretionary, Consumer Staples, Financials, Communication Services, and Industrials detracted 0.67%, 0.45%, 0.42%, 0.31%, 0.25%, and 0.17% respectively from relative performance. The portfolio is overweight Utilities, Real Estate and Technology and underweight Consumer Staples, Communication Services, Consumer Discretionary, Healthcare, and Financials.

BALANCED RISK (BR) (May 2019 and June 2019 only)

The Balanced Risk strategy return was up 1.99%, the S&P Target Risk Moderate Index return was up 1.50%. The strategy’s second quarter outperformance was derived from positive performance in Utilities, Staples, Investment Grade Corporate Bonds, Intermediate Term Bonds, and Emerging Markets Bonds respectively. High Yield equities detracted modestly from performance. The portfolio is ~60% defensive and high yield equites and ~40% fixed income.

CONSERVATIVE RISK (CR) (May 2019 and June 2019 only)

The Conservative Risk strategy return was up 3.21%, the S&P Target Risk Conservative Index return was up 1.75%. The strategy’s second quarter outperformance was derived from positive performance in Intermediate Term Bonds, Investment Grade Corporate Bonds, Emerging Markets Bonds, Staples, and Utilities respectively. High Yield equities detracted modestly from performance. The portfolio is ~30% defensive and high yield equites and ~70% fixed income.

LATIN AMERICA EQUITY (LA)

The Latin America Equity strategy return was up 6.66%, the MSCI EM Latin America Index return was up 3.55%. The strategy’s second quarter outperformance was derived from positive performance in eight of eleven sectors. Most notable were Utilities, Industrials, Technology, Communication Services, Energy and Consumer Staples contributing 2.58%, 2.52%, 0.77%, 0.28%, 0.25%, and 0.23% respectively to performance. Financials and Consumer Discretionary contributed a combined 0.15% to performance. Materials detracted 0.12% from performance. There was no exposure to Healthcare or Real Estate. The portfolio is overweight Utilities and Industrials; and is underweight Financials, Materials, Consumer Discretionary, and Consumer Staples.