Noteworthy Developments: Global equities appreciated modestly in February, as strong gains in international developed and emerging markets offset declines in U.S. large-cap stocks driven by weakness in the technology and communications services sectors.
Global Equities: Global equities rose 1.3% during February, as measured by the MSCI ACWI Index. Performance diverged across regions. U.S. large-cap equities (S&P 500) declined 0.8%, while international developed equities rose 4.6% and emerging market equities advanced 5.5%.
Emerging markets led global performance during the month, with Asian markets such as Korea and Taiwan benefiting from continued demand tied to the semiconductor supply chain and the buildout of AI data center infrastructure. International developed equities also advanced, with Europe and Japan supported by strong corporate earnings and investor rotation away from the more technology concentrated U.S. market.
Style leadership favored value stocks (+3.3%) vs growth stocks (-0.9%). Sector performance reflected this dispersion, with cyclical sectors tied to capital spending and real economy investment among the strongest performers, including materials (+9.9%), utilities (+8.7%), energy (+8.3%), and industrials (+6.9%). Communication services (-4.7%), consumer discretionary (-3.2%), and information technology (-1.0%) were among the weakest sectors. Given their significant weight in the U.S. market, weakness across these sectors contributed to the S&P 500’s decline.
Within technology, software companies were particularly pressured. Investors reassessed the long term competitive implications of rapid advances in artificial intelligence, raising concerns that AI enabled tools could disrupt portions of the traditional enterprise software model. The sell off was exacerbated by elevated valuations across many software companies following strong performance over the past year, as these firms had previously been viewed as key beneficiaries of AI adoption.
Fixed Income: The US Aggregate Bond Index rose 1.6% during February. US Treasuries rose 1.8%, as declining yields across the curve drove price appreciation in high quality fixed income securities. Intermediate maturities led the move, with yields falling roughly 20–30 basis points during the month.
Investment grade corporate bonds gained 1.3%. The decline in base rates and coupon income drove positive returns while widening credit spreads of 13bps detracted.
Riskier credit lagged. High yield bonds rose 0.2%, as positive benefits from coupon income and lower base rates were offset by widening credit spreads. Leveraged loans declined by 0.8% as coupon income was offset by price declines associated with spreads widening. Riskier loans performed worst and within sectors, software loans exhibited poor performance with 4.2% declines.
Alternatives: Hedge funds posted modest gains during February, with the HFRX Global Hedge Fund Index rising 0.4%. Macro strategies led performance with the HFRX Macro/CTA Index gaining 1.4%, while equity hedge strategies also rose 0.8%. Relative value credit strategies were largely flat (+0.1%), while event driven strategies declined slightly (-0.1%).
Manager Comments:
Eminence: -4.7%: underperformed various indexes including MSCI World (+0.7%) and S&P Midcap (+4.0%) due to idiosyncratic weakness across several positions.
USD February Market Commentary
Noteworthy Developments: Global equities appreciated modestly in February, as strong gains in international developed and emerging markets offset declines in U.S. large-cap stocks driven by weakness in the technology and communications services sectors.
Global Equities: Global equities rose 1.3% during February, as measured by the MSCI ACWI Index. Performance diverged across regions. U.S. large-cap equities (S&P 500) declined 0.8%, while international developed equities rose 4.6% and emerging market equities advanced 5.5%.
Emerging markets led global performance during the month, with Asian markets such as Korea and Taiwan benefiting from continued demand tied to the semiconductor supply chain and the buildout of AI data center infrastructure. International developed equities also advanced, with Europe and Japan supported by strong corporate earnings and investor rotation away from the more technology concentrated U.S. market.
Style leadership favored value stocks (+3.3%) vs growth stocks (-0.9%). Sector performance reflected this dispersion, with cyclical sectors tied to capital spending and real economy investment among the strongest performers, including materials (+9.9%), utilities (+8.7%), energy (+8.3%), and industrials (+6.9%). Communication services (-4.7%), consumer discretionary (-3.2%), and information technology (-1.0%) were among the weakest sectors. Given their significant weight in the U.S. market, weakness across these sectors contributed to the S&P 500’s decline.
Within technology, software companies were particularly pressured. Investors reassessed the long term competitive implications of rapid advances in artificial intelligence, raising concerns that AI enabled tools could disrupt portions of the traditional enterprise software model. The sell off was exacerbated by elevated valuations across many software companies following strong performance over the past year, as these firms had previously been viewed as key beneficiaries of AI adoption.
Fixed Income: The US Aggregate Bond Index rose 1.6% during February. US Treasuries rose 1.8%, as declining yields across the curve drove price appreciation in high quality fixed income securities. Intermediate maturities led the move, with yields falling roughly 20–30 basis points during the month.
Investment grade corporate bonds gained 1.3%. The decline in base rates and coupon income drove positive returns while widening credit spreads of 13bps detracted.
Riskier credit lagged. High yield bonds rose 0.2%, as positive benefits from coupon income and lower base rates were offset by widening credit spreads. Leveraged loans declined by 0.8% as coupon income was offset by price declines associated with spreads widening. Riskier loans performed worst and within sectors, software loans exhibited poor performance with 4.2% declines.
Alternatives: Hedge funds posted modest gains during February, with the HFRX Global Hedge Fund Index rising 0.4%. Macro strategies led performance with the HFRX Macro/CTA Index gaining 1.4%, while equity hedge strategies also rose 0.8%. Relative value credit strategies were largely flat (+0.1%), while event driven strategies declined slightly (-0.1%).
Manager Comments:
Eminence: -4.7%: underperformed various indexes including MSCI World (+0.7%) and S&P Midcap (+4.0%) due to idiosyncratic weakness across several positions.
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