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after finishing the second quarter down more than -20% from
its all-time high set on January 3rd. It was the worst first-half
performance for the S&P 500 since 1970. Bonds, represented
by the Bloomberg Aggregate Index could not escape the
carnage either as they also finished June down more than
-10% YTD.
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The second quarter was a continuation of many of the same themes as the first quarter this year, as illustrated in Figure 1. Value stocks outperformed their Growth peers and Large-caps generally outperformed Small-caps. When looking at the 9 style boxes, the performance of each of Russell’s 9 equity style indexes were negative. S&P sectors only had Energy produce positive performance year-to-date, up more than 30%. Utilities, Consumer Staples, and Health Care sectors each had single-digit losses year-to-date. The remaining sectors have experienced negative performance year-to-date, down anywhere from 16-32%. International markets suffered too, just as the global supply chain issues continue to struggle to meet demand.


Meeder Fixed Income portfolios started the second quarter with exposure to high yield bonds, investment-grade bonds, short-term U.S. Treasuries, and cash. As market volatility increased early in the quarter, momentum and volatility factors in our credit model signaled risk-off sentiment and we reduced high yield positions in our portfolios, moving the proceeds to cash. We also extended portfolio duration from mid-May through mid-June, as momentum factors in our duration model indicated relative strength in longer duration Treasuries. As volatility subsided towards the end of May, macroeconomic, momentum and volatility factors in our credit and emerging markets led us to increase high yield and emerging market exposure briefly.
However, rate volatility in the fixed income markets continued to rise during the quarter and the Federal Reserve surprised the markets with a higher-than-expected, 0.75% rate hike on the federal funds rate in June. Our models ultimately guided us to exit high yield and emerging market positions in mid-June, increasing the cash position in our portfolios. Higher cash exposure helped our portfolios’ relative performance against market benchmarks on the downside during the quarter.
One-third of the portfolio remained invested in U.S. Investment grade securities throughout the quarter. At the end of the second quarter, we reduced High Yield and Emerging Market exposure and shortened the duration by raising cash.
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