A Fragile Recovery

Propelled by large cap growth stocks, the S&P 500 reached an all-time high on September 2. New economic data exceeded expectations, and COVID-19 cases were falling in the U.S. Yet stocks soon declined, driven by a correction in large cap tech stocks. Equities still closed the quarter in positive territory, with the S&P returning 9% this quarter and 6% year-to-date. However, unlike the NASDAQ, the S&P finished the quarter below pre-pandemic highs.

The U.S. economy improved significantly this quarter, but investors continue to face several serious risks. In late September, confirmed COVID-19 cases were rising worldwide, and the pandemic may intensify as winter approaches. A combative U.S. presidential election looms. Meanwhile, Congress has struggled to pass another stimulus package, and the Sino-American conflict has escalated. Two other sizeable risks have received less investor attention: climate change and socioeconomic inequalities. A well-diversified, risk-targeted portfolio is essential for navigating these risks.

New Frontier Performance

New Frontier’s global strategies, as calculated by S&P Dow Jones Indices, performed well this quarter and year. The 20/80 New Frontier Global Income Index, NFGII, returned 2.3% this quarter and 4.3% year-to-date. The 60/40 New Frontier Global Institutional Index, NFGBI, returned 5.2% this quarter and 4.2% this year. Finally, the 100/0 New Frontier Global Equity Index, NFGEI, returned 7.8% and 0.9% for the quarter and year, respectively. For comparison, the MSCI ACWI IMI index, returned 8.1% and 0.5%, respectively.

Our recently launched domestic strategies also performed well. The 60/40 New Frontier U.S. Institutional Index, NFDBI, returned 4.6% this quarter and 4.6% this year. The 100/0 New Frontier U.S. Equity Index, NFDEI, returned 8.0% and 5.8% respectively on the quarter and year. As a reference, the S&P returned 8.9% this quarter and 5.6% this year.

An Uneven Quarter

The stock rally continued in July and August: the S&P rose 13%, growth outperformed value by 10%, and U.S. stocks outperformed international ones by 4%. The dollar declined 5%, and U.S. large caps outperformed small caps by 5%.1 However, stocks changed course in September: the S&P fell 4%, growth underperformed value by 2%, and the U.S. underperformed international by 1%. The dollar rose 2%. Investors became concerned about the high valuations of large cap tech stocks, and the options market experienced abnormally high volumes. Value stocks also suffered in September as confirmed coronavirus cases increased and vaccine news was mixed. Despite all this activity, it was the least eventful quarter of 2020.