Investment Review

Fall 2018

Large cap U.S. stocks were the top-performing asset class for the quarter ending September 2018 returning 7.7%. Emerging markets were down 1.7% for the quarter and the worst-performing asset class of those we track.

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

 
The chart above highlights some of the year’s prominent headlines in the context of global stock market performance as measured by the MSCI All Country World Index-Investable Market Index (MSCI ACWI IMI). 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 2018	12 Months Ending 9/30/2018
U.S. Large Cap Vanguard 500 Index Fund	+7.7%	+17.7%
U.S. Large Cap Value iShares Russell 1000 Value Index	+5.6%	+9.3%
U.S. Small Cap iShares Russell 2000 Index	+3.6%	+15.2%
U.S. Small Cap Value iShares Russell 2000 Value Index	+1.7%	+9.1%
International Vanguard Total International Stock Index Fund	+0.5%	+1.5%
Emerging Markets Vanguard FTSE Emerging Markets ETF	-1.7%	-3.6%
U.S. REITs Vanguard REIT ETF	+0.5%	+1.9%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	-0.1%	-1.3%

Source: SchwabInstitutional.com

 
Individual Asset Classes

The returns for the recent quarter that are listed below are sourced from my.Dimensional.com.

World Asset Classes

Looking at broad market indices, the U.S. outperformed non-U.S. developed and emerging markets during the quarter. Small caps underperformed large caps in the U.S., non-U.S. developed, and emerging markets. The value effect was positive in emerging markets but negative in the U.S. and non-U.S. developed markets. REIT indices underperformed equity market indices in both the U.S. and non-U.S. developed markets.

U.S. Stocks

The U.S. equity market posted a positive return, outperforming both non-U.S. developed and emerging markets. Value underperformed growth in the U.S. across large and small cap stocks. Small caps underperformed large caps in the U.S.

International Developed Market Stocks

In U.S. dollar terms, developed markets outside the U.S. underperformed the U.S. but outperformed emerging markets during the quarter. Large cap value stocks underperformed large cap growth stocks in non-U.S. developed markets; however, small cap value outperformed small cap growth. Small caps underperformed large caps in non-U.S. developed markets.

Emerging Markets Stocks

In U.S. dollar terms, emerging markets posted negative returns for the quarter, underperforming developed markets including the U.S. The value effect was positive, particularly in large caps in emerging markets. Small caps underperformed large caps.

Real Estate Investment Trusts

U.S. real estate investment trusts outperformed non-U.S. REITs in U.S. dollar terms.

Fixed Income

Interest rates increased in the U.S. during the third quarter. The yield on the 5-year Treasury note rose 21 basis points (bps), ending at 2.94%. The yield on the 10-year Treasury note increased 20 bps to 3.05%. The 30-year Treasury bond yield rose 21 bps to 3.19%.

On the short end of the yield curve, the 1-month Treasury bill yield increased 35 bps to 2.12%, while the 1-year Treasury bill yield rose 26 bps to 2.59%. The 2-year Treasury note yield finished at 2.81% after an increase of 29 bps.

In terms of total return, short-term corporate bonds gained 0.71%, while intermediate-term corporates returned 0.80%. Short-term municipal bonds declined 0.11%, while intermediate-term munis dipped 0.06%. Revenue bonds (‒0.16%) performed in line with general obligation bonds (‒0.14%).

Conclusion

We encourage our clients to keep long-term expected returns in mind when reviewing short-term performance of one quarter or one year. As always, if you have concerns about your portfolio, let us know.