Investment Review

Summer 2017

All of the asset classes we track and benchmark to client portfolios were up for the quarter. The asset class winner for the quarter ending June 30 was international small cap, with a return of 8.1%. Emerging markets and international large cap returned 6.3% and 5.8%, respectively. U.S. large cap stocks returned 3.1%—an impressive return, albeit lagging non-U.S. markets—reminding investors of the importance of holding a globally diversified portfolio.

 
Selected Headlines from the Past 12 Months Graphed with the World Stock Market Performance (MSCI All Country World Index)

 
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	Q2 2017	12 Months Ending 6/30/2017
U.S. Large Cap Vanguard 500 Index Fund	+3.1%	+17.7%
U.S. Large Cap Value iShares Russell 1000 Value Index	+1.3%	+15.4%
U.S. Small Cap iShares Russell 2000 Index	+2.5%	+24.4%
U.S. Small Cap Value iShares Russell 2000 Value Index	+0.6%	+24.6%
International Vanguard Total International Stock Index Fund	+5.8%	+20.0%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+3.4%	+18.8%
U.S. REITs Vanguard REIT ETF	+1.7%	-1.9%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+1.6%	-0.4%

 
Individual Asset Classes

World Asset Classes

Looking at broad market indices, both international developed markets and emerging markets recorded similar returns, outperforming the U.S. during the quarter.

The value effect was negative in the U.S., international, and emerging markets. Small caps outperformed large caps in international developed markets but underperformed in the U.S. and emerging markets.

U.S. Stocks

The broad U.S. equity market posted positive returns for the quarter but underperformed both international developed and emerging markets.

Value underperformed growth indices in the U.S. across all size ranges.

Small caps in the U.S. underperformed large caps.

International Developed Market Stocks

In U.S. dollar terms, developed markets outperformed the U.S. equity market and had similar performance to emerging markets indices during the quarter. Looking at broad market indices, the value effect was negative across all size ranges in international developed markets.

Small caps outperformed large caps in international developed markets.

Emerging Markets Stocks

In U.S. dollar terms, emerging markets indices outperformed the U.S. and recorded similar performance to developed markets outside the U.S. Looking at broad market indices, the value effect was negative across all size ranges in emerging markets. Small caps underperformed large caps in emerging markets.

Real Estate Investment Trusts

Real estate investment trusts (REITs) lagged their equity market counterparts.

Fixed Income

Interest rates were mixed across the U.S. fixed income market during the second quarter. The yield on the 5-year Treasury note decreased 4 basis points (bps) to 1.89%. The yield on the 10-year Treasury note decreased 9 bps to 2.31%. The 30-year Treasury bond yield decreased 18 bps to finish at 2.84%.

The yield on the 1-year Treasury bill rose 21 bps to 1.24%, and the 2-year Treasury note yield rose 11 bps to 1.38%. The yield on the 3-month Treasury bill climbed 27 bps to 1.03%, while the 6-month Treasury bill yield increased 23 bps to 1.14%.

In terms of total returns, short-term corporate bonds gained 0.59% and intermediate corporates gained 1.49%.

Short-term municipal bonds gained 0.56%, while intermediate-term municipal bonds returned 1.97%. Revenue bonds gained 2.19%, outperforming general obligation bonds by 39 bps.