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Monthly Market Update - May 2017

Global stocks climbed 2.0% in May after the release of strong economic data worldwide. U.S. stock markets trailed ever so slightly with the S&P 500 Index returning 1.4%. Following a modest month in April, the S&P 500 is up 8.7% year‐to‐date as signs of a stronger economy and low unemployment persist.

Economy

  • The estimate for U.S. real GDP growth was revised upward for the first quarter from 0.7% to 1.2%.
  • Inflation fell to 2.2% on a year‐over‐year basis.
  • A modest 138,000 jobs were added in May. At 4.3%, U.S. unemployment remains near what economists consider full employment.

Stocks

  • The S&P 500 Index rose 1.4% in May. Information technology and utilities were the leading sectors with gains of 4.4% and 4.2%, respectively.
  • International markets had another strong month as international small stocks led the way with a 4.4% gain.
  • All international stock asset classes now have double‐digit gains for the year. International small currently leads the pack, up 17.5% through the end of May. Emerging markets follows closely with its 17.3% year‐to‐date return.

Bonds

  • The 10‐year U.S. Treasury yield pulled back 0.1% to a level of 2.2% in May.
  • Intermediate‐term bonds were the best performers for the month with a gain of 0.5%.
  • Intermediate‐term bonds are the top performers so far this year with a 1.9% gain through May.

Alternatives

  • Results were mostly positive for alternatives in May. Managed futures, reinsurance, and global REITs experienced gains, while commodities had losses for the month.
  • Declines in the prices for energy had the largest impact on commodities as a whole.
  • Managed futures are down 5.2% year‐to‐date, and reinsurance is up 1.5%. Long‐term returns for both asset classes have been favorable. Managed futures and reinsurance are up 4.1% and 7.9%, respectively, over the last ten years.

Vanguard - Lower Fees! More Savings!

Vanguard recently announced expense reductions for over 80 mutual funds and ETFs. Savant currently uses 17 of those funds across different investment models. This is exciting news as one of the pillars of Savant’s investment philosophy is keeping portfolio expenses low. The rising momentum in demand for lower expenses on investment products is another example of how Savant has been ahead of the marketplace in seeking out lower costs for investors.

U.S. mutual funds and ETFs that charged a fee of 0.50% of assets or less attracted $1.4 trillion in new money over the past three years, while $0.9 trillion came out of funds charging more than 0.50%. As markets continue to develop and investors continue to move money from actively managed to passively managed funds, there could potentially be even more pressure among firms to offer lower expense ratios for their funds.

Nickel and diming your way to lower expenses may not always be the quickest way to growing assets. However, in this case the adage “a penny saved is a penny earned” applies, as these savings may help our clients compound their wealth at a faster rate than before!

Below is a table detailing the impact lower fees can have on fund returns. The difference in compounding returns over time can play a huge role in building financial wealth for investors.


Data: Morningstar Direct. Low and high expense funds are funds in the first and fourth quartiles of expense ratios in their category. Returns are the average fund returns of those quartiles. Data as of 12/31/2016.

Sources: Bureau of Economic Analysis (BEA), Bloomberg, Federal Reserve, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch, Vanguard

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