Summary Observations: Fiscal Year 2014

• US equities returned 24.6% in the fiscal year ended June 30, 2014, ranking 31st in 114 fiscal years of data. The health care, information technology, and materials sectors all returned above 30%. All developed markets ended the fiscal year in the black, with Europe ex UK the best-performing region and Japan the only country to post single-digit returns. The United States recovered its 2007 peak in fiscal year 2013; developed markets as a whole have now recovered their peak as well, though other major subregions remain below.

• Emerging markets surged in the last three months of the fiscal year, but still underperformed developed markets by nearly 10 ppts. Excluding Greece, which was reclassified to an emerging market in this fiscal year, and Hungary, all developed and emerging markets have posted a positive five-year average annual compound return. Frontier markets (36.6%) posted their best fiscal year return since the year ended June 30, 2007. The tensions between Ukraine and Russia were largely ignored by the markets. Ukrainian equities, which compose just 0.2% of the frontier index, returned 26.5% in the final three months of the fiscal year, for a 10.2% fiscal year return; Russian equities, 5.4% of the emerging index, returned 10.8% in the final three months and 8.2% for the fiscal year.

• Credit markets also finished the fiscal year in the black. The benchmark Barclays Agg returned 4.4% while US high-yield bonds returned 11.7%. High-yield issuance has soared in the past two fiscal years and for calendar year 2014 is expected to reach a new record. Ten-year Treasury yields finished the fiscal year almost exactly where they began it, at 2.53%.

• Global flow data turned decidedly in favor of equities in the fiscal year, with global fixed income funds seeing their first significant outflows post–financial crisis.

• Among real assets, natural resources equities had a banner fiscal year, returning over 25%, while returns for commodities were 8.2%, with weak performance in the last three months of the fiscal year. US REITs, by contrast, had a strong last quarter of the fiscal year, ending with a return for the year of 13.0%. Gold prices ended the fiscal year at $1,317/troy ounce, up 8.4%.

• Volatility across asset classes dropped during the last three months of the fiscal year to levels last seen during 2005–06.

• Preliminary data from Hedge Fund Research, Inc., show many hedge fund strategies posting solid returns for the fiscal year, with the widely followed HFRI Fund Weighted Composite Index returning 9.1% and the HFRI Equity Hedge Index, 12.6%. Through first quarter 2014 estimated hedge fund assets are $2.7 trillion, a new record.

• For the one-year period ended March 31, 2014, the Cambridge Associates LLC US Private Equity Index returned 19.1% while the Cambridge Associates LLC US Venture Capital Index returned 30.5%. Five-year returns through March 31 were 17.4% and 14.2%, respectively.

• The IPO market was strong in the fiscal year, with private equity– and venture-backed IPOs reaching their highest level by value since our analysis began in fiscal year 2000, and their largest number since fiscal year 2001. The M&A market was less exuberant, with slightly lower totals by volume and value this fiscal year versus the previous one.

• The pound sterling moved up strongly against the US dollar in fiscal year 2014; the Swiss franc and the euro also strengthened against the greenback. The yen was slightly weaker against the dollar to end the fiscal year, as was our emerging markets currency basket.

Returns in Fiscal Year 2014 Were Uniformly Positive

Equity returns were particularly strong, with many countries posting double-digit returns 

And Across Asset Classes Generally Beat Returns in FY 2013

The US Equity Return Was in the Top Third of Historical Periods

All DM Sectors and 8 of 10 EM Sectors Posted Double-Digit Returns in FY2014

Heavily weighted financials were at the low end of returns for both developed and emerging markets

US Equities’ Strong Performance Has Pushed DM Equities Over Their 2007 Peak

Other major developed regions and emerging markets still lag their 2007 peaks, particularly in US$ terms

Global Flows Moved Strongly Back into Equities in FY2014

Ten-Year US Treasury Yields Ended the Fiscal Year Right Where They Began

High-Yield New Issuance Remained Strong in FY2014

Issuance in recent fiscal years has far outpaced earlier periods

Nearly All Hedge Fund Strategies Posted Positive Returns in FY2014

Most Public Real Assets Also Did Not Keep Up With Equities in FY2014

Natural resources equities outperformed US equities by 500 bps

The Fiscal Year Ended with Low Levels of Volatility Across Asset Classes

PE- and VC-Backed IPOs in FY2014 Reached Their Highest Number Since FY2000

Average amount raised for PE-backed deals was the second highest in the 2000s

PE- and VC-Backed M&A Activity Was Slightly Below FY2013 in Volume and Value

The US Dollar Ended FY2014 Lower Against the Euro and the Pound

The US dollar was up slightly over the course of the year against the yen