Investment Review

Spring 2020

The global pandemic has rooted itself in the stock market. Eventually the market—and the world—will completely recover, although the timing is unknown. We do know that we are in a bear market, defined as a market decline of more than 20%.

 
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 2020	12 Months Ending 3/31/2020
U.S. Large Cap Vanguard 500 Index Fund	-19.6%	-7.0%
U.S. Large Cap Value iShares Russell 1000 Value Index	-26.7%	-17.3%
U.S. Small Cap iShares Russell 2000 Index	-30.7%	-24.1%
U.S. Small Cap Value iShares Russell 2000 Value Index	-35.8%	-30.1%
International Vanguard Total International Stock Index Fund	-24.3%	-16.6%
Emerging Markets Vanguard FTSE Emerging Markets ETF	-24.4%	-18.3%
U.S. REITs Vanguard REIT ETF	-24.2%	-16.7%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+3.1%	+8.6%

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 around the globe posted negative returns in the first quarter. Looking at broad market indices, U.S. equities outperformed non-U.S. developed markets and emerging markets. Value stocks underperformed growth stocks in all regions. Small caps also underperformed large caps in all regions. REIT indices underperformed equity market indices in both the U.S. and non-U.S. developed markets.

U.S. Stocks

The U.S. equity market posted negative returns for the quarter but on a broad index level outperformed non-U.S. developed markets and emerging markets. Value underperformed growth in the U.S. across large and small cap stocks. Small caps underperformed large caps in the U.S. REIT indices underperformed equity market indices.

International Developed Market Stocks

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

Emerging Markets Stocks

Emerging markets underperformed developed markets, including the U.S., for the quarter. Value stocks underperformed growth stocks. 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 during the quarter.

Fixed Income

Interest rates decreased in the U.S. treasury market in the first quarter. The yield on the 5-year Treasury note decreased by 132 basis points (bps), ending at 0.37%. The yield on the 10-year note decreased by 122 bps to 0.70%. The 30-year Treasury bond yield decreased 104 bps to 1.35%.

On the short end of the yield curve, the 1-month Treasury bill yield decreased to 0.05%, while the 1-year Treasury bill yield decreased by 142 bps to 0.17%. The 2-year note finished at 0.23% after a decrease of 135 bps.

In terms of total returns, short-term corporate bonds declined 2.19%. Intermediate-term corporate bonds declined 3.15%.

The total return for short-term municipal bonds was -0.51%, while intermediate-term municipal bonds returned -0.82%. General obligation bonds outperformed revenue bonds.

Conclusion

Markets are designed to handle uncertainty, processing information in real time. We see this happen when markets decline sharply, as they have recently, as well as when they rise. Check out our blog posts about the recent market volatility for enlightening graphics and strategic insights that explain why holding stocks for the long term is the best way to achieve your goals.

Thank you for your continued confidence and trust.