Investment Review
Fall 2022
Global stocks finished the quarter lower after initial July gains, with the MSCI All Country World IMI Index returning -6.6% for the quarter. All eyes were on the Fed as rate hikes continued amid fears of continued high inflation. The dollar continued its march upwards, hitting multidecade highs against the British pound, Japanese yen, and euro with US stocks faring better than most global markets, outperforming non-US stocks by 5% for the quarter.
Small cap investors were rewarded in the US and across emerging markets versus, with small cap growth losing less than small cap value. After a strong comeback for value stocks during the first half of the year, the third quarter saw value stocks lag growth stocks. In the US, low profitability growth stocks especially outperformed, with names like Tesla and Netflix posting double-digit gains while the broader US market declined.
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 2022 | 12 Months Ending 9/30/2022 |
| U.S. Large Cap Vanguard 500 Index Fund |
-4.89% | -15.51% |
| U.S. Large Cap Value iShares Russell 1000 Value Index |
-5.56% | -11.40% |
| U.S. Small Cap iShares Russell 2000 Index |
-2.11% | -23.63% |
| U.S. Small Cap Value iShares Russell 2000 Value Index |
-4.64% | -17.94% |
| International Vanguard Total International Stock Index Fund |
-10.51% | -25.21% |
| Emerging Markets Vanguard FTSE Emerging Markets ETF |
-11.21% | -24.55% |
| U.S. REITs Vanguard REIT ETF |
-11.04% | -18.68% |
| Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF |
-4.70% | -14.47% |
Source: SchwabInstitutional.com
Individual Asset Classes
The returns for the recent quarter that are listed below are sourced from my.Dimensional.com.
U.S. Stocks
The US equity market posted negative returns for the quarter and outperformed both non-US developed and emerging markets. Value underperformed growth. Small caps outperformed large caps. REIT indices underperformed equity market indices.
International Developed Market Stocks
Developed markets outside of the US posted negative returns for the quarter and underperformed the US market, but outperformed emerging markets. Value underperformed growth. Small caps underperformed large caps.
Emerging Markets Stocks
Emerging markets posted negative returns for the quarter and underperformed both US and non-US developed 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 increased across all bond maturities in the US Treasury market for the quarter.
The yield on the 5-Year US Treasury Note increased 105 basis points (bps) to 4.06%. The yield on the 10-Year US Treasury Note increased 85 bps to 3.83%. The yield on the 30-Year US Treasury Bond increased 65 bps to 3.79%. On the short end of the yield curve, the 1-Month US Treasury Bill yield increased 151 bps to 2.79%, while the 1-Year US Treasury Bill yield increased 125 bps to 4.05%. The yield on the 2-Year US Treasury Note increased 130 bps to 4.22%.
In terms of total returns, short-term corporate bonds returned -1.94% and intermediate-term corporate bonds returned -3.11%. The total return for short-term municipal bonds was -1.88% and -2.65% for intermediate-term municipal bonds. Within the municipal fixed income market, general obligation bonds outperformed revenue bonds, returning -3.30% vs. -3.62%, respectively.
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.
