Returning to Normal?

As the global economy continued to reopen and the recovery gained speed, markets reached new highs. Inflation rose significantly, but prospects dimmed for a sizable infrastructure bill. Thus, some major trends from the first quarter reversed: bond yields fell and value stocks underperformed as the Fed tried to rein in inflation expectations. Despite some mixed signals from the U.S. labor market, the future seems bright for the global economy, although the recovery depends on sustained government support and more equal vaccine distribution.

New Frontier Global and U.S. Index Performance

All New Frontier strategies reached new highs during the quarter. The New Frontier Global (60/40) Institutional Index (NFGBI) returned 5.3% in Q2 and 7.0% year-to-date, as calculated by S&P Dow Jones Indices. Similarly, the New Frontier U.S. (60/40) Institutional Index (NFDBI) returned 5.4% and 8.5% on the quarter and year, respectively. Both 60/40 strategies outperformed their benchmarks in Q2, by 1.0% and 0.4%, respectively.[1]

New Frontier’s all-equity strategies also performed strongly. The New Frontier Global Equity Index (NFGEI) rose 6.7% in Q2 and 13.1% year-to-date, while the ACWI IMI returned 7.2% on the quarter and 12.7% on the year. Finally, the New Frontier U.S. Equity Index (NFDEI) returned 7.4% and 14.9% this quarter and year, while the S&P 500 NR rose 8.4% and 15.0%, respectively.

Market Performance

The post-pandemic stock rally continued in Q2, reflecting the successful reopening of the U.S. economy. The S&P 500 returned 8.5%, and the NASDAQ returned 9.7%, both reaching all-time highs. In contrast to the first quarter, U.S. growth stocks outperformed value stocks by 6.9%, and large caps outperformed small caps by 4.3% as bond yields fell.[2] After a historically bad quarter for bonds, the AGG returned 1.8% in Q2 and credit spreads remained tight. Gold also rebounded, rising 3.6%.

But some trends from the first quarter continued. U.S. equities outperformed international ones by 2.9%, and Chinese equities underperformed the U.S. by 6.2%.[3] Real estate was the best performing sector in the U.S., yet international REITs had modest returns, indicating the uncertainty surrounding the international recovery.