Investment Review

Fall 2019

During the third quarter of 2019, large cap value outperformed large growth and small cap growth and value. This article summarizes the performance of various asset classes during the third quarter of 2019, and for the 12-month period ending September 30.

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 2019	12 Months Ending 09/30/2019
U.S. Large Cap Vanguard 500 Index Fund	+1.7%	+4.2%
U.S. Large Cap Value iShares Russell 1000 Value Index	+1.5%	+3.8%
U.S. Small Cap iShares Russell 2000 Index	-2.3%	-9.0%
U.S. Small Cap Value iShares Russell 2000 Value Index	-0.4%	-8.5%
International Vanguard Total International Stock Index Fund	-1.6	-1.6%
Emerging Markets Vanguard FTSE Emerging Markets ETF	-4.1%	+1.0%
U.S. REITs Vanguard REIT ETF	+7.6%	+19.9%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+2.3%	+10.3%

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, U.S. equities outperformed non-U.S. developed and emerging markets during the third quarter. Value stocks outperformed growth stocks in the U.S. but underperformed in non-U.S. and emerging markets. Small caps outperformed large caps in non-U.S. markets but underperformed in the U.S. and emerging markets. REIT indices outperformed equity market indices in both the U.S. and non-U.S. developed markets.

U.S. Stocks

U.S. equities outperformed both non-U.S. developed and emerging markets in the third quarter. Value outperformed growth on a marketwide basis in the U.S. However, value underperformed growth across large cap stocks but outperformed in small caps. Small caps underperformed large caps in the U.S. REIT indices outperformed equity market indices.

International Developed Market Stocks

In U.S. dollar terms, developed markets outside the U.S. outperformed emerging markets but underperformed the U.S. market during the third quarter. Small caps outperformed large caps in non-U.S. developed markets. Value underperformed growth across large cap stocks but outperformed in small caps.

Emerging Markets Stocks

In U.S. dollar terms, emerging markets underperformed developed markets, including the U.S., in the third quarter. Value stocks underperformed growth stocks. Small caps underperformed large caps.

Real Estate Investment Trusts

In the third quarter, U.S. real estate investment trusts outperformed non-U.S. REITs in U.S. dollar terms.

Fixed Income

Interest rates in the U.S. Treasury market decreased during the third quarter. The yield on the 5-year Treasury note declined by 21 basis points (bps), ending at 1.55%. The yield on the 10-year Treasury note decreased by 32 bps to 1.68%. The 30-year Treasury bond yield fell by 40 bps to 2.12%.

On the short end of the yield curve, the 1-month Treasury bill yield decreased to 1.91%, while the 1-year Treasury bill yield decreased by 17 bps to 1.75%. The 2-year Treasury note yield finished at 1.63% after a decrease of 12 bps.

In terms of total returns, short-term corporate bonds gained 1.17%. Intermediate-term corporate bonds had a total return of 1.74%.

The total return for short-term municipal bonds was 0.33%, while intermediate-term muni bonds returned 1.02%. Revenue bonds outperformed general obligation bonds.

Conclusion

Long-term investors should be aware that letting short-term trends influence their investment approach will likely be counterproductive. Please let us know if you’d like to discuss your portfolio or financial plan.

Thank you for your continued confidence and trust.