Investment Review

Fall 2020

Emerging market stocks had the best performance of the major asset classes in the third quarter of 2020, returning over 10%. The next best performer was large cap US stocks which returned almost 9%. The US REIT index understandably was the worst performer of the bunch, as the new reality of work-from-home hit the commercial real estate market; the US REIT index returned 1.3% for the quarter and -12.3% for the prior 12 months.

 
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 2020	12 Months Ending 9/30/2020
U.S. Large Cap Vanguard 500 Index Fund	+8.92%	+15.11
U.S. Large Cap Value iShares Russell 1000 Value Index	+5.55%	-5.18%
U.S. Small Cap iShares Russell 2000 Index	+5.03%	+0.44%
U.S. Small Cap Value iShares Russell 2000 Value Index	+2.54%	-14.93%
International Vanguard Total International Stock Index Fund	+6.48%	+3.77%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+10.24%	+10.50%
U.S. REITs Vanguard REIT ETF	+1.31%	-12.28%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+0.40%	+6.83%

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

Equity markets around the globe posted positive returns in the third quarter. Looking at broad market indices, emerging markets equities outperformed US and non-US developed markets for the quarter. Value underperformed growth across regions. Small caps outperformed large caps in non-US developed and emerging markets but underperformed in the US. REIT indices underperformed equity market indices in both the US and non-US developed markets.

U.S. Stocks

The US equity market posted positive returns for the quarter, outperforming non-US developed markets but underperforming emerging markets. Value underperformed growth across large and small cap stocks. Small caps underperformed large caps. REIT indices underperformed equity market indices.

International Developed Market Stocks

Developed markets outside the US posted positive returns for the quarter but underperformed US and emerging markets equities. Value underperformed growth. Small caps outperformed large caps.

Emerging Markets Stocks

Emerging markets posted positive returns for the quarter, outperforming the US and developed international equity markets. Value underperformed growth. Small caps outperformed large caps.

Real Estate Investment Trusts

US real estate investment trusts underperformed non-US REITs during the quarter.

Fixed Income

Interest rate changes were mixed in the US Treasury fixed income market during the third quarter. The yield on the 5-year US Treasury note decreased by 3 basis points (bps), ending at 0.31%. The yield on the 10-year US Treasury note rose by 3 bps to 0.64%. The 30-year US Treasury bond yield increased by 5 bps to 1.46%.

On the short end of the yield curve, the 1-month US Treasury bill yield decreased to 0.08%, while the 1-year T-bill yield decreased by 5 bps to 0.14%. The 2-year US T-note yield finished at 0.09% after a decrease of 2 basis points.

In terms of total returns, short-term corporate bonds returned 0.92% for the quarter. Intermediate-term corporates returned 1.33%.

The total return for short-term municipal bonds was 0.83%, while intermediate munis returned 1.40%. Revenue bonds outperformed general obligation bonds.

Conclusion

We continue to recommend an asset allocation for our clients based upon personal risk tolerance and long-term objectives. A mix with a larger allocation to stock is considered risker, but has a higher expected return over time.

Thank you for your continued confidence and trust.