Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

Following the choppiness seen in January, February turned out to be an exceptionally strong month for most equity markets.  Although US GDP growth for Q4 2014 fell short of expectations, growth for the overall year was still the highest in four years.  The price of oil stabilized, and things were generally more sanguine on the macro front.  A surge of M&A activity in the pharmaceuticals space also helped to stoke investor sentiment.  That said, China was notable for a number of data points indicating some economic weakness.

The US broad market Russell 3000 Index finished the month at +5.8%.  US small cap stocks were marginally better with the Russell 2000 Index returning +5.9%.  Outside of the US, returns were comparable in the developed markets as the MSCI World ex USA Index returned +6.0%, but developing markets were relative laggards with the MSCI Emerging Markets Index returning +3.1%.

After a stretch of several challenging months, active manager performance was finally broadly positive.  Sector spreads increased, and the leadership of Technology was likely beneficial for many managers.  Volatility, either measured by the VIX or cross-sectional indexes, was still near the low end of historical ranges so outperformance may have been due more to positioning than security selection.  Trade volumes continued to move lower.  On a factor basis, underweights to low volatility, value, stability, and momentum were helpful while size was largely neutral.