The difficult start to 2022 continued for US investors.
The average diversified US equity fund fell 1.3% in February, a month that began with concerns about the Federal Reserve and quickly moved to Russia’s war on Ukraine. February’s decline pushed the year-to-date decline to 7.9%, according to data from Refinitiv Lipper.
International equity funds were down 3.5% in February and 7.7% since the start of the year.
“It was a very meaningful month…not just for the markets but for us as human beings first, given the tragedy unfolding in Europe,” said Gargi Chaudhuri, Head of Investment Strategy. iShares for the Americas at BlackRock in New York.
The month was a story of two halves, says Ms. Chaudhuri. “I think how much the market was focused on the Federal Reserve, until the middle of the month,” before the invasion of Russia, she says. The focus on the jobs report and inflation data in early February “it all seems a very long time ago,” she says.
Fund performance in February 2022, total return by fund type.
Some strategists say to get out of higher quality bonds. This includes Jim McDonald, chief investment strategist at Northern Trust. “We want inflation protection in our portfolios today, and also want to reflect the increased risk to European growth from the Russian invasion of Ukraine,” he says. “Inflation protection is achieved through our overweight in natural resource stocks and US equities, and our underweight in investment grade bonds.”
Ms Chaudhuri says investors will continue to digest the economic and human toll of the Russian attacks. “One of the things that my team and I have just done is look at previous periods of geopolitical risk to see what the S&P, for example, has been doing,” she says. “Essentially, we found that if you stayed invested in the markets during geopolitical volatility, you tended to do better, unless the volatility happened when economic growth slowed for other reasons.”
Until Friday’s stock decline, the market had held up pretty well since the invasion, notes Ralph Bassett, head of North American equities at asset manager Abrn in Philadelphia. “The market was almost starting to cook not a recession, but definitely a slowdown in growth,” he says. “What happened is that inflation expectations went up [in the past month] and for economic growth declined. The only thing holding markets back is that the Fed doesn’t overreact.
“What we are struggling with is the sustainability of these commodity price rallies. You will have supply,” Bassett says.
Bond funds fell in February. Funds linked to upper-middle-maturity debt securities (the most common type of fixed-income fund) fell 1.3% in February, bringing the year-to-date decline to 3, 3%.
Mr. Power is editor of the Wall Street Journal in South Brunswick, NJ Email him at [email protected]
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Appeared in the print edition of March 7, 2022 under the title “Equity funds down 7.9% for 2022”.