The ETF Portfolio Strategist - Saturday, June 5

This past week saw another period of gains across asset classes as well as across the world. Additionally, global asset allocation continues to pay off for portfolio strategies.

Beta Risk Keeps on Giving 

Once again, it took real effort to lose money in global diversified portfolios this week. Unless you were concentrated in foreign junk bonds (this week’s only loser for our 16-fund global opportunity set), it was a winning week – again.

Leading the gainers for a second straight week through Friday's trading was iShares Latin America 40 (ILF), which rallied 5.4%. This slice of global markets continues to come alive as the ETF surged to its highest close since January 2020. ILF has now recovered all of its pandemic losses (and then some).

The second-best performer was well behind ILF. Nonetheless, US real estate investment trusts (REITs) continue to deliver solid gains. The latest installment, Vanguard Real Estate (VNQ), rose 2.7% this week.

Boosting the allure of yield-oriented investments such as REITs were fresh signs that US interest rates remain in a holding pattern after a months-long run of rising. But the upside bias ended in March, replaced by flatlining (with a bit of downside). The 10-year Treasury yield, for example, fell to 1.56% in Friday's session, close to the lowest level since March.

Friday's softer-than-expected payrolls report probably played a role in the renewed fall in yields (and rise in bond prices). Economists were looking for a 650,000 gain in payrolls via Econoday's consensus point forecast. The actual result was well below at 559,000; a decent number on its face, but in the context of a labor market that’s still digging itself out of a pandemic hole, it was a disappointing gain.

One takeaway is that the economic recovery may not be as strong as previously assumed, in which case, the inflation threat may not be as acute as the hawks have been arguing. The narrative certainly gave bonds a lift this week. The iShares 7-10 Year Treasury Bond ETF (IEF) edged up 0.4% for the trading week, closing at its best level in three months.

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