Investment Review

Fall 2017

U.S. stocks returned another quarter of impressive returns. The globally diversified portfolios our clients hold benefited from exposure to international and emerging market stocks, both of which returned more than the S&P 500.

 
Selected Headlines from the Past 12 Months Graphed with the World Stock Market Performance (MSCI All Country World Index)

 
We are not offering these headlines to explain market returns. But they do serve as a reminder that investors should view daily events from a long-term perspective and avoid making financial decisions based solely on the news.

 
Investment Review

Benchmark Funds	Q3 2017	12 Months Ending 9/30/2017
U.S. Large Cap Vanguard 500 Index Fund	+4.5%	+18.5%
U.S. Large Cap Value iShares Russell 1000 Value Index	+3.0%	+14.9%
U.S. Small Cap iShares Russell 2000 Index	+5.9%	+21.0%
U.S. Small Cap Value iShares Russell 2000 Value Index	+5.3%	+20.7%
International Vanguard Total International Stock Index Fund	+6.0%	+19.3%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+8.0%	+18.7%
U.S. REITs Vanguard REIT ETF	+0.9%	+0.5%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+0.7%	-0.1%

 
Individual Asset Classes

World Asset Classes

With broad market indices used as proxies, emerging markets outperformed developed markets, including the U.S., during the quarter.

The value effect was positive in non-U.S. developed markets but negative in the U.S. and emerging markets. Small caps outperformed large caps in U.S. and non-U.S. developed markets but underperformed in emerging markets.

U.S. Stocks

The broad U.S. equity market posted positive returns for the quarter but underperformed both non-U.S. developed and emerging markets.

Value underperformed growth indices in the U.S. across all size ranges.

Small caps in the U.S. outperformed large caps

International Developed Market Stocks

In U.S. dollar terms, developed markets outperformed U.S. equity indices but underperformed emerging markets indices during the quarter.

With broad market indices used as proxies, the value effect was positive. The value effect was positive in large caps but negative in mid and small caps.

Overall, small caps outperformed large caps in non-U.S. developed markets.

Emerging Markets Stocks

In U.S. dollar terms, emerging markets indices outperformed developed market indices, including the U.S., during the quarter.

With broad market indices used as proxies, the value effect was negative. Across the size spectrum in the large and mid cap space, the value effect was negative; however, in the small cap space, the effect was positive.

Overall, small caps underperformed large caps in emerging markets.

Real Estate Investment Trusts

Global (non-U.S.) real estate investment trusts outperformed U.S. REITs.

Fixed Income

Interest rates increased across the U.S. fixed income market for the quarter. The yield on the 5-year Treasury note increased by 3 basis points (bps) to 1.92%. The yield on the 10-year Treasury note increased by 2 bps to 2.33%. The 30-year Treasury bond yield increased by 2 bps to finish at 2.86%.

The yield on the 1-year T-bill rose 7 bps to 1.31%, and the 2-year Treasury note yield rose 9 bps to 1.47%. The yield on the 3-month Treasury bill increased 3 bps to 1.06%, while the 6-month Treasury bill yield increased 6 bps to 1.20%.

In terms of total returns, short-term corporate bonds gained 0.59%, and intermediate-term corporates gained 1.05%.

Short-term municipal bonds generated a total return of 0.49%, while intermediate-term municipal bonds returned 0.83%. General obligation bonds gained 1.14%, outperforming revenue bonds by 4 bps.