The major equity markets (S&P 500, EFA, EEM) have done well for the 2nd quarter, with the US markets being the shining star. While we think there will be some consolidation, we still expect this year to end positively.

After a poor 1st quarter, fixed income has posted positive returns in the 2nd quarter as rates moved lower. Despite this, fixed income remains in negative territory for the year. We continue to watch rates to see if we need to increase the duration in our portfolio.

Sectors and factors of note are Technology (XLK), Real Estate (IYR), Energy (XLE), Quality (QUAL), and Size (SIZE). We continue to see rotation in the market as the market looks for new leadership. As rates move down, technology tends to be the biggest beneficiary. As rates move up, you start to see other sectors outperform. This rotation makes positioning in the portfolios difficult; especially as there is no clear view from the market on interest rates. We continue to hold value (VLUE) in our Opportunistic Portfolio and manage the momentum factor exposure.

Our views have not changed from the 1st quarter. We continue to watch three main things: fiscal policy, monetary policy, and interest rates. As long as we have fiscal stimulus and accommodative monetary policy, we could see the market continue to make new highs. As we all know, the market doesn’t always go up in a straight line. Rates will not be low forever. You should not be surprised to see volatility pick up as the market’s views change and/or evolve.

Please see below for further detailed analysis and chart references. If you have any questions or would like to discuss anything mentioned, please do not hesitate to reach out. We appreciate each one of you. We hope the first half of the year has been good for you, and we look forward to seeing you soon.

Major Markets


S&P 500 ETF (US Market) – SPY

Commentary: The S&P 500 continues to lead the major markets in performance year to date. The long-term momentum in the SP500 continued with Energy, Financial and Industrial sectors leading the way for the 2nd quarter of 2021. The SP500 pulled away from the international indexes over the second quarter. 

MSCI EAFE ETF (Developed International Market) – EFA

Commentary: The EAFE Index underperformed the SP500 for the second quarter. The new delta variant was more concerning towards the end of the quarter in international markets than here in the US. 

MSCI Emerging Markets ETF (Emerging Markets) – EEM

Commentary: Emerging market’s 2nd quarter performance was the worst of the three indexes. Some of this underperformance is attributable to the new delta variant (COVID) being more of a concern but also the commodity markets losing some steam towards the end of the quarter. 

MSCI ACWI ETF (Global Market) – ACWI

Commentary: The ACWI is a global market ETF that is a combination of US, Developed International, and Emerging Markets. This combined index performance is being driven by US Markets. 

Market Performance

The best performing market for the 2nd quarter was SP500, with EAFE (EFA) or Developed International second and Emerging Markets (EEM) coming in third.

US Sector Performance 

The best performing sector for the 2nd quarter was Real Estate and Technology, with Energy coming in a close second and Healthcare and Financials tying for 3rd. You can see the sector performance for the quarter below. 

US Factor Performance

The best performing factor for the 2nd quarter was Quality (QUAL), followed by Size (SIZE) and Momentum (MTUM). 

Fixed Income

iShares 20 + Years Treasury Bond (Long Term Bonds) – TLT

Commentary: After a strong upward move in rates for the first quarter, rates have moved lower during the second quarter. As a reminder, when rates move up bonds move down and when rates move down bonds move up. We had a position in TLT in opportunistic that we exited in the second quarter. As you can see by the chart TLT corrected in May and then has moved up since. 

iShares Core US Aggregate Bond (Bonds) – AGG 

Commentary: This index had a negative first quarter, but as you can see by the chart the second quarter corporate bonds had a positive run. This caused by rates moving back down as we have seen a scare in future economic growth rate due in large part to the new COVID delta variant. 

iShares 1-3 Year Treasury Bond (Short Term Bonds) – SHY

Commentary: Short term interest rates moved up for the second quarter and mainly came at the end of the quarter as you can see by the correction in SHY. This move is only a $0.15 move or 0.17% move, so not a big move but it did move opposite of longer-term bonds. This is what we call flattening of the yield curve, when short term rates move up and long-term rates move down. 

iShares National Muni Bond ETF (Municipal Bonds) – MUB

Commentary: Municipal bonds are also affected by interest rates, represented by the same inverse pattern; price increase as rates decrease. 

Factors in Portfolio or of Interest

iShares MSCI USA Value Factor ETF (Value) – VLUE

Commentary: We have had an opportunistic position in VLUE since the beginning of 2021. The first quarter saw significant outperformance, but VLUE had a harder time in the second quarter. As noted above in the bar chart it was the worst-performing factor for the second quarter. However, the first quarter outperformance still puts VLUE as the top factor YTD. We are closely watching this position and will move out of it if we see further weakness.

iShares MSCI USA Momentum Factor ETF (Momentum) – MTUM

Commentary: As you can see by the chart momentum had a roller coaster 2nd quarter. It started the quarter off strong and sold off only to rally and sell off again. All in all, the momentum factor did well for the 2nd quarter. The MTUM ETF is in the strategic portfolio, and we look for momentum in Syntal Global Equity Momentum, so this factor tends to influence our performance in the overall portfolio.

iShares Core Dividend Growth ETF (Dividend) – DGRO

Commentary: We own DGRO, and we also have Syntal Dividend Growth portfolio that tracks and looks to outperform the ETF. We believe fixed income yields will continue to below, so we have added dividends to the portfolio to increase the cash flow and participate in the equity market.

Sectors in Portfolio or of Interest

Spider Fund Energy ETF (Energy) – XLE

Commentary: The performance year to date for energy has been spectacular. The second quarter was no different. Energy had great performance for the 2nd quarter coming in barely behind Technology and Real Estate. Energy is part of our opportunistic portfolio.

Spider Fund Technology (Technology) – XLK

Commentary: The Technology sector has had the most benefit from the COVID shutdown. The COVID shutdowns have created new habits such as remote working and how we consume entertainment. Technology has been the best performing sector over the past couple of years. Low interest rates have also been beneficial for this sector. We watch this sector heavily in our momentum strategy and look to adjust our exposure accordingly.

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