News & Insights

The equity markets continued to narrow in Q2. Large growth was the only winning style, and even that was deceptive as large growth returns were concentrated in the usual handful of mega caps perceived to be artificial intelligence (AI) beneficiaries. While showing some signs of weakness, economic growth remained positive while inflation continued to roughly moderate through the period. Interest rates rose in April, fell in May and were largely flat in June, ending the quarter very close to where they started.

The Bailard Technology Strategy posted a 2Q24 total return of 9.75% net of fees, ahead of both the cap-heavy benchmark index (S&P North American Technology Index) as well as the competitor-comprised benchmarks. The Morningstar U.S. Open End Technology Category returned 3.24% and the Lipper Science and Technology Fund Index returned 5.10%, while the S&P North American Technology Index generated 9.36% and the Nasdaq-100 Index returned 8.05%. Over longer time periods of 3, 5, and 10 years, the Strategy’s net returns continued to lead the competitor peer benchmarks.

The ECB and the Bank of Canada cut rates by 25bps earlier this month. The mood in Europe remains dovish as the ECB’s Rehn, a usual hawk, says expectations for two more cuts this year are reasonable. The Bank of England kept rates steady but hinted that policy makers could cut as soon as August on the back of the UK’s inflation progress.

Following its Swiss counterpart’s March cut, the European Central Bank appears poised to lower rates at its early June meeting. Markets may have anticipated this growing divergence between the Fed and peers abroad, as the dollar weakened slightly through May and European equities led.

The Japanese yen hit its lowest level versus the dollar since the 1980s late in the month, followed by a sharp bounce in the currency, which most suspect was driven by official intervention.

The global economic environment changed dramatically in the first quarter as bond yields, which had marched down in the 4th quarter on the belief that central bank pivots were fast approaching, reversed course. Prospects for mid-year reductions in short-term interest rates remain high for Europe and the UK, but persistent strength in the U.S. labor market has pushed prospects for a shift there closer to the end of 2024. Still, non-U.S. equities found purchase in solid earnings even as they faced headwinds from a strong dollar due to the evolving central bank dynamics and heightened geopolitical risks. As noted below, we see a range of foreign stocks that can flourish in the current environment and remain excited for the potential of stocks both in developed and emerging markets to compete well against U.S. peers.

The Bailard Technology Strategy posted a Q1 total return of 17.08% net of fees, meaningfully ahead of the competitor-comprised benchmarks, with the Morningstar U.S. Open End Technology Category return of 8.56% and the Lipper Science and Technology Fund Index return of 12.18%. The Strategy also led both the S&P North American Technology Index return of 15.31% and the mega-cap Nasdaq-100 Index return of 8.72%. Over longer time periods of 3, 5, and 10 years, the Strategy’s net returns continued to lead the competitor’s peer group benchmarks.

Equity markets rose again in Q1, but relative returns were skewed toward growth. The seven mega cap technology stocks that did so well in 2023 retained their “magnificence” in Q1, resulting in indices with Magnificent 7 exposure beating indices that lacked it. Curiously, rising interest rates over the quarter did not dampen investors’ enthusiasm for long duration (growth) assets, even with the Fed signaling that potential rate cuts may come later and to a lesser degree than had previously been anticipated.

Bailard’s Micro Cap Value Strategy has been recognized as Manager of the Decade and Bull/Bear Masters in the Micro Cap Value Universe in the PSN Top Guns list as of Q4 2024. The PSN Top Guns List for top performance in separate accounts, managed accounts, and managed ETF strategies.

Inflation continued to moderate across most major markets: the Fed’s preferred Core PCE reading cooled to 2.8% year over year, while British CPI fell to 3.4%, the Eurozone to 2.6%, and Switzerland to just 1.2%.

Bailard is thrilled to announce its inclusion in the PSN Top Guns List for top performance in separate accounts, managed accounts, and managed ETF strategies for the fourth quarter of 2023. This recognition, presented by Zephyr, highlights the achievements of product offerings within the PSN peer reporting framework. Bailard’s Micro Cap Value, Technology, and Technology & Science strategies achieved notable rankings on the list.

The Bailard Technology Strategy was a top performer in Morningstar's Overall U.S. Separate Accounts Category over 1-year period, and Morningstar's Technology Category over 1- and 5-year periods ending December 31, 2023

Bailard’s CIO Eric Leve was highlighted alongside some bright minds in the industry sharing strategies on how to invest $100,000 in today’s market. Beyond traditional avenues, Eric and his peers also explored unique ideas ranging from epic concerts, rescue cat cafes, and boundary-pushing travel.

Japan’s Nikkei 225 Index finally surpassed its high reached in 1989. Memory of deflation may not be beaten, but January data registered the 22nd consecutive month of +2% year-over-year inflation, the longest such stretch since the early 1990s.

Generative Artificial Intelligence, or "GenAI," has captured the world's imagination. We have written extensively on the trend and believe it will catalyze a sharp increase in productivity of knowledge workers. We are already seeing strong evidence of impact in several industries. Unfortunately, we also believe GenAI will serve as an accelerant to cybersecurity threats. Like strong winds in a forest fire, this will further enflame an already roiling threat landscape, enhancing the need for cybersecurity solutions and serving as a tailwind to cybersecurity demand.

Global tensions are rising in the Middle East and beyond. Iran targeted Sunni militias in Pakistan, and their proxies targeted an American air base in Iraq. Red Sea shipping disruptions have caused freight costs for many routes to more than double.