Investment Review
Fall 2021
Stocks in all the major asset classes posted negative returns for the third quarter. Emerging markets took the biggest hit, down 7% for the quarter per the Vanguard FTSE Emerging Markets ETF. However, for the 12 months ending September 30, equities posted much higher than average positive returns (see chart below). Anyone who thought small cap value stocks were dead may have missed out on the 63.7% 12-month return as represented by the iShares Russell 2000 Value ETF. A long-term view helped our clients capture these outsize returns, which in turn helped keep them on the path to achieve their goals.
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 2021 | 12 Months Ending 9/30/2021 |
| U.S. Large Cap Vanguard 500 Index Fund |
+0.57% | +29.98% |
| U.S. Large Cap Value iShares Russell 1000 Value Index |
-0.83% | +34.79% |
| U.S. Small Cap iShares Russell 2000 Index |
-4.34% | +47.43% |
| U.S. Small Cap Value iShares Russell 2000 Value Index |
-2.88% | +63.69% |
| International Vanguard Total International Stock Index Fund |
-3.00% | +24.36% |
| Emerging Markets Vanguard FTSE Emerging Markets ETF |
-7.04% | +18.24% |
| U.S. REITs Vanguard REIT ETF |
+0.62% | +33.49% |
| Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF |
-0.01% | -0.96% |
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 declined in the third quarter. Looking at broad market indices, US and non-US developed markets outperformed emerging markets.
Value performance was mixed in the US, with small value outperforming small growth but large value underperforming large growth. Value underperformed growth in non-US developed markets and outperformed in emerging markets.
Small caps underperformed large caps in the US but outperformed in non-US developed and emerging markets.
REIT indices outperformed equity market indices in the US and underperformed in non-US developed markets.
U.S. Stocks
The US equity market was flat for the quarter and outperformed non-US developed markets and emerging markets.
Value underperformed growth in large cap stocks but outperformed growth in small cap stocks.
Small caps underperformed large caps.
REIT indices outperformed equity market indices.
International Developed Market Stocks
Developed markets outside the US declined less than 1% for the quarter and underperformed US equities but outperformed emerging markets.
Value underperformed growth.
Small caps outperformed large caps.
Emerging Markets Stocks
Emerging markets posted negative returns for the quarter, underperforming the US and non-US developed equity markets.
Value outperformed growth.
Small caps outperformed large caps.
Real Estate Investment Trusts
US real estate investment trusts outperformed non-US REITs during the quarter.
Fixed Income
Interest rates in the US Treasury fixed income market generally increased during the third quarter. The yield on the 5-year Treasury note rose 12 basis points (bps), ending at 1.00%. The yield on the 10-year Treasury note increased 8 bps to 1.54%. The 30-year Treasury Bond yield rose 1 bp to finish at 2.05%.
On the short end of the curve, the 1-month Treasury bill yield increased 2 bps, ending at 0.07%, while the 1-year Treasury bill yield decreased 1 bp to 0.09%. The 2-year Treasury note yield increased 5 bps to 0.30%.
In terms of total returns, short-term corporate bonds returned 0.11%. Intermediate-term corporate bonds gained 0.08%.
The total return for short-term municipal bonds was 0.08%, while intermediate munis lost 0.04%. Revenue bonds performed in line with general obligation bonds for the quarter.
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 riskier but has a higher expected return over time.
Thank you for your continued confidence and trust.
