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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Tuesday, April 1, 2014

March 2014 - Monthly Market Commentary


March brought mixed results to global risk assets.  In the US equity markets, growth stocks underperformed value stocks as many of the recent high fliers pulled back sharply.  Emerging market equities, however, rose sharply, and in many cases more than erased January and February losses.  The US February jobs report showed hiring resilience despite the poor weather with 175,000 new jobs; for the first time in 46 months more unemployed people found jobs than dropped out of the workforce.  Federal Reserve Chair Yellen whipsawed global markets in March by first indicating in a March 19 press conference that the Fed may begin raising interest rates about six months after ending its bond purchase program and later backtracking from those comments on the last day of the month by stating that the US economy will need Fed stimulus for “some time”.      
March saw continued strong M&A activity.  Notable deals announced in March included Cerberus’ $9 billion deal to buy Safeway, Chiquita Brands’ $1.1 billion merger with Fyffes, Men’s Wearhouse’s $1.8 billion acquisition of Jos. A. Bank, RWE AG’s $7 billion sale of its oil and gas production unit to Russian billionaire Mikhail Fridman, Vodafone’s $10 billion acquisition of Spanish cable operator Grupo Corporativo Ono, MSCI’s sale of ISS to Vestar Capital for $364 million, JP Morgan’s sale of its commodities trading unit to Mercuria Energy for $3.3 billion, Onex’s sale of the Warranty Group to TPG Capital for $1.5 billion, CPPIB’s $1.8 billion acquisition of Wilton Re, Media General’s $1.6 billion acquisition of LIN Media, Temasek’s $5.7 billion 25% investment in Li Ka-Shings’s Watson Co., Bain Capital and Advent International’s $3.1 billion acquisition of Nordic card-payment company Nets, Facebook’s $2 billion acquisition of Oculus VR, Babcock’s $1.5 billion acquisition of Avincis, Bashneft’s $1 billion acquisition of Burneftegaz, Encana’s sale of its Jonah Field assets to TPG for $1.8 billion, and J&J’s sale of its Ortho-Clinical Diagnostics business to Carlyle for $4 billion.
Developed market equity markets were mixed in March (see page 6), as Spain (+2.6%), Canada (+1.2%), and the S&P500 (+0.8%) led gains.  US small caps underperformed with the Russell 2000 down 0.7% (see page 3).  Telecom (+4.8%) and Utilities (+3.4%) were the best performing US sectors (see page 2), while Consumer Discretionary (-2.8%) and Health Care (-1.3%) were the worst performing.  Large cap growth (-1%) underperformed large cap value (+2.4%) in March (see page 3).  Emerging Market equities were mostly higher in March (see page 7), with the biggest gains in Argentina (+16.4%), Brazil (+7.2%), and India (+4.7%) and losses in Russia (-4.2%) and China (-1.7%). 
In currencies, the USD Index strengthened 0.5% in March (see page 8).  Gains were seen against the USD in the Australian Dollar (+3.8%) and the New Zealand Dollar (+3.3%), while the Yen (-1.4%) and Swedish Krona (-0.9%) weakened.  The USD weakened against most emerging market currencies with the biggest gains in the Indian Rupee (+3.3%), Turkish Lira (+3.1%), and Brazilian Real (+3.1%); the Chinese Yuan (-1.1%) and Taiwan Dollar (-0.4%) weakened against the USD.
US Treasuries sold off in March, particularly in the belly of the curve (see page 10).  10 year rates closed the month at 2.72%, up from 2.65% at February month end.  Investment grade and high yield US credit spreads widened in March (see page 11), while European sovereign spreads continued to tighten (see page 12).
In commodities, the GSCI index was roughly flat (up 0.1%) in March (see page 9), led by gains in Agriculture (+7.5%) and Livestock (+4.1%); weakness was seen in Precious Metals (-3.4%), Industrials (-2.4%), and Energy (-1.2%).  Within individual commodities, Wheat led gains (+15.8%), followed by Lean Hogs (+11.2%), Corn (+8.3%), and Cotton (+7.3%); Silver (-7%), Copper (-5.3%), Natural Gas (-4.1%), and Gold (-2.9%) weakened.
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