Investment Review

Spring 2019

The first quarter of 2019 saw a sharp positive reversal from December 2018 levels. When selecting strategies for their portfolios, many investors are tempted to seek out the latest and greatest investment opportunity. Fashionable investment approaches will come and go, but investors should remember that a long-term disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets.

This article summarizes the performance of various asset classes during the first quarter of 2019, and for the 12-month period ending March 31.

 
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	Q1 2019	12 Months Ending 3/31/2019
U.S. Large Cap Vanguard 500 Index Fund	+13.6%	+9.4%
U.S. Large Cap Value iShares Russell 1000 Value Index	+11.8%	+5.5%
U.S. Small Cap iShares Russell 2000 Index	+14.7%	+2.1%
U.S. Small Cap Value iShares Russell 2000 Value Index	+12.0%	+0.2%
International Vanguard Total International Stock Index Fund	+10.2%	-5.3%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+11.8%	-7.1%
U.S. REITs Vanguard REIT ETF	+17.4%	+20.1%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+2.9%	+4.6%

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 posted positive returns around the globe in the first quarter. Looking at broad market indices, U.S. equities outperformed non-U.S. developed and emerging markets. Small caps outperformed large caps in the U.S. and non-U.S. developed markets but underperformed in emerging markets. Value stocks generally underperformed growth stocks in all regions. 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. Small caps outperformed large caps in the U.S. Value underperformed growth across large and small cap stocks.

International Developed Market Stocks

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

Emerging Markets Stocks

In U.S. dollar terms, emerging markets underperformed developed markets, including the U.S. Value outperformed growth across small cap stocks but underperformed in large caps. 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 decreased in the U.S. Treasury fixed income market during the first quarter. The yield on the 5-year Treasury note declined 28 basis points (bps), ending at 2.23%. The yield on the 10-year Treasury note decreased 28 bps to 2.41%. The 30-year Treasury bond yield fell 21 bps to finish at 2.81%.

On the short end of the curve, the 1-month T-bill yield was relatively unchanged at 2.43%, while the 1-year T-bill yield dipped 23 bps to 2.40%. The 2-year Treasury note finished at 2.27% after a 21 bps decrease.

In terms of total returns, short-term corporate bonds gained 1.83%. Intermediate-term corporate bonds had a total return of 3.82%.

Total returns for short-term municipal bonds were 1.33%, while intermediate munis gained 2.78%. 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.