Positive sentiment in November pushed stock prices higher in the US and overseas while bond prices gained as yields declined sharply
Positive sentiment pushed stock prices higher in the US and overseas while bond prices gained as yields declined sharply. Optimism around lower interest rates following softer-than expected US inflation data combined with signs of economic resilience in November, but sprinkled by talk of a looming 2024 US recession, boosted investors’ belief that the economy may be heading for a soft landing, that the Federal Funds rate may have peaked and the Fed is expected to shift in 2024 to an easing on the brake interest rates posture. This is on top of a temporary avoidance of a government shutdown as funding was extended to at least mid-January against a backdrop of a Moody’s announcement that the US government’s debt was placed on negative outlook, as well as rising corporate profits, which according to the Commerce Department, rose 1.1% from a year earlier in the third quarter.

Global stocks, as measured by the MSCI ACWI, ex USA Index, recorded their strongest monthly gain since November 2022, registering a gain of 9% while US large cap stocks tracked by the S&P500 added 9.13%, the best monthly increase since July 2022. The gain not only reversed three months of consecutive declines but also put the S&P 500 year-to-date climb of 20.8% ahead of last year’s 18.11% drop.

Bond yields declined sharply, delivering the best monthly return in more than 10 years, by some accounts. The 10-year U.S. Treasury yield fell 51 basis points and the move in interest rates fueled a rally across fixed income assets. The Bloomberg US Aggregate Bond Index added 4.53%, pulling into positive territory on a year-to-date basis with a rise of 1.64%. Longer dated bonds posted even wider gains.

Sustainable mutual funds and ETFs recorded an average rise of 7.55%
Against this backdrop, sustainable mutual funds and ETFs, a total of 1,588 funds/share classes with $326.9 billion in assets under management, recorded an average rise of 7.55%, pulling up the average year-to-date and trailing 12-month results for all funds to 8.05% and 4.48%. Equity funds were up 9.3%, on average, while bond funds added 4.1%.

Both the top and bottom performing funds were dominated by investment companies pursuing a thematic orientation
Both the top and bottom performing funds in November were dominated by investment companies pursuing a thematic orientation, reflecting the potential near-term volatility of such funds and reinforcing the view that such funds should be thoroughly researched and, before investing, consideration should be given to their risk profile.

The top performing funds, all equity funds, recorded an average gain of 15.7%. Returns in November for this segment ranged from a high of 18.2% to 14.1%. The best performing fund, the $76.5 million AXS Green Alpha ETF (NXTE), is a thematic fund investing in sustainable companies that seek to mitigate global sustainability systemic risks, including the climate crisis, natural resource degradation and scarcity and human disease burdens. The fund benefited from outsized returns produced by firms such as Lam Research, Applied Materials and CRISPR Therapeutics AG that were up 97.9%, 74.4% and 64.1%, respectively, over the previous 12 months.

At the other end of the range, the worst performing funds all registered negative returns. Averaging a negative 7.9%, the ten worst performing funds posted results that ranged from a low of -23.6% to -2.8%. KraneShares Global Carbon Offset Strategy ETF (KSET) was the worst performing fund in November, dropping 23.6%. The fund, which experienced a significant drop in net assets to $0.7 million at the end of November, down from $9.9 million at the end of April 2022, tracks the S&P GSCI Global Voluntary Carbon Liquidity Weighted Index. The index provides broad coverage of the voluntary carbon market by tracking carbon offset futures contracts. A factor influencing the fund’s recent performance has been a decline in the market sentiment towards the carbon offset market due to integrity concerns.