In May, equity and bond markets continued to move together, with both asset classes rallying over the month. Having started this year with a run of blistering prints in the US for GDP growth, retail sales and employment, there was a slight moderation in the data over the course of May. Retail sales were weaker than expected, remaining flat on a month-on-month basis. On inflation, the highly anticipated CPI print in the US came in at 3.4% on a year-on-year basis, in line with economist forecasts. Chinese data was marginally stronger over the course of the month, as the government implemented several policies aimed at fixing the ailing property sector, which is suffering from a large debt overhang. Central banks continue to have a bias to cut rates, but these expectations continue to be pushed back by inflation, that has proved more stubborn than expected.
Equity markets rallied, with the MSCI World up over 2.6% on the month. Within equities, returns broadened, having been led by a narrow group of stocks in the US for much of the year. The strongest region was Europe, with our holding in the iShares European Value ETF outperforming over the course of the month.
Fixed income also generated positive returns, with the 10-year US bond rallying 23bps over the month. Within the asset class, our holding in the Tabula Asia HY Bond ETF generated strong returns, in line with equity markets. The Chinese component of the index continues to rally on government support and stronger Chinese data.
Within Alternatives, the takeover offer from Tritax BigBox for UK Commercial Property, which was held in portfolios completed and the shares rallied strongly. We continue to believe that UK REITS offer the opportunity to buy high quality assets at deep discounts to net asset value. A holding in broad commodities, on the other hand was a slight detractor to portfolio performance over the month.
