Fund Return 2023-2024

Returns to 31.05.2024  - coming soon

For now please click here to see a graphical illustration of funds to 31.05.2023

Investment Commentary

Provided by Mercer - CERS Investment Adviser

Market Developments

Global equities and fixed income posted positive returns in May. US equities outperformed both international and emerging market equities. International equities outperformed emerging markets. Growth significantly outperformed value during the month.

Investor sentiment improved during the month following the risk off market in April. Inflation continued to ease in developed markets, reducing fears of a higher for longer scenario. Notably, inflation in the US declined in line with market expectations after it surprised to the upside for three consecutive readings in 2024Q1. Nonfarm payrolls for April and Q1 GDP growth indicate that the US economy is slowing albeit it remains robust overall which raised investors’ hopes for softer growth that reduces inflation without triggering a recession. Yields fell across the curve in the US as this scenario rekindled hopes of at least some rate cuts later this year, which helped propel equities and fixed income higher. Solid corporate earnings were another tailwind.

Forward looking purchasing manager indicators continue to be in expansionary territory in developed markets, with the US composite PMI climbing to its highest level since April 2022. Europe and Japan also saw PMIs increase, albeit less than in the US, while the UK’s fell and came in below expectations. Within emerging markets, China and India PMIs continued to strengthen. China unveiled new measures aimed at stimulating growth in the struggling property sector, leading to solid equity returns in May. Overall, economic data continues to show a resilient global economy.

The Fed kept interest rates unchanged while the minutes from their May meeting suggested that the disinflation process could take longer than previously thought. With that said, US headline inflation eased to 3.4% while core inflation fell to 3.6%, both were in line with expectations and helped provide some support for risk assets. Elsewhere, inflation in developed markets continues to trend downward while the Bank of England left interest rates unchanged. Inflation in China rose in April and came in above expectations following last year’s deflationary period as the economy continues to recover.

Trade tensions between the US and China increased as the US raised tariffs on Chinese electric vehicles to 100% and implemented higher tariffs on Chinese semiconductors and solar cells. Additionally, the State Department of Commerce withdrew export licenses from major semiconductor companies, aimed at preventing supply to Chinese telecom company Huawei. A general election for July was called in the UK. The overall market impact from geopolitical events was muted.

The US dollar weakened against most major currencies. Global REITs underperformed broader equities. While still posting positive absolute returns in May, commodities underperformed broad equities as crude oil declined following strong performance earlier in the year. Gold continued to climb and hit new record highs during the month, supported by falling yields.

Outlook

Over Q1 2024 developed and emerging equity markets had positive returns, leading to higher valuations and lower projected forward returns. Expected returns for bonds on the other hand increased as yields rose materially over the quarter, especially on the longer end, as markets reset their expectations on the timing and scale of rate cuts for this year.

Economic data continues to confirm the trend of falling inflation in developed countries even if it has remained resilient in the US at around 3.5% as of March 2024. Economic growth also remains resilient. A soft landing is still the most likely outcome for the global economy with inflation to decline towards central bank targets in the medium term.

Economic growth expectations for the next two years are expected to remain close to or slightly below trend in developed countries, in line with the soft-landing base case. Inflation is declining and normalizing and projected to settle at or slightly above target in most developed economies throughout 2024.

Major developed market central banks have communicated that they are at the end of this tightening cycle, and we may be at the cusp of a cutting cycle even though this may not occur as soon and as fast as markets were hoping at the end of 2023.

  Notes