Investment Review

Summer 2020

The stock market is a forward-looking indicator. It predicts what is ahead for the economy. As of July, large cap US stocks have recovered from the market low of March 23. For the quarter and one-year periods ending June 30, the S&P 500 return is positive. Small cap stocks had a fantastic second quarter returning over 25%. Value stocks had positive returns for the quarter, and historically perform well both coming out of a recession and when inflation is rising.

 
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	Q2 2020	12 Months Ending 6/30/2020
U.S. Large Cap Vanguard 500 Index Fund	+20.5%	+7.5%
U.S. Large Cap Value iShares Russell 1000 Value Index	+14.2%	-8.9%
U.S. Small Cap iShares Russell 2000 Index	+25.5%	-6.6%
U.S. Small Cap Value iShares Russell 2000 Value Index	+19.3%	-17.4%
International Vanguard Total International Stock Index Fund	+18.1%	-4.1%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+18.6%	-3.9%
U.S. REITs Vanguard REIT ETF	+13.5%	-6.9%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+3.1%	+8.9%

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 positive returns in the second quarter. Looking at broad market indices, US equities outperformed non-US developed markets and emerging markets. Value stocks underperformed growth stocks, and small caps outperformed large caps. REIT indices underperformed equity market indices in both the US and non-US developed markets.

U.S. Stocks

The US equity market posted positive returns for the quarter, outperforming non-US developed markets and emerging markets. Value underperformed growth in the US across large and small cap stocks. Small caps outperformed large caps in the US. REIT indices underperformed equity market indices.

International Developed Market Stocks

Developed markets outside the US underperformed both the US equity market and emerging markets equities for the quarter. Small caps outperformed large caps in non-US developed markets. Value underperformed growth across large and small cap stocks.

Emerging Markets Stocks

Emerging markets underperformed the US equity market but outperformed developed markets outside of the US for the quarter. Value stocks underperformed growth stocks. Small caps outperformed large caps.

Real Estate Investment Trusts

US real estate investment trusts underperformed non-US REITs in US dollar terms during the quarter.

Fixed Income

Interest rate changes were mixed in the US Treasury fixed income market in the second quarter. The yield on the 5-Year US Treasury Note decreased by 8 basis points (bps), ending at 0.29%. The yield on the 10-year note decreased by 4 bps to 0.66%. The 30-Year US Treasury Bond yield increased by 6 bps to 1.41%.

On the short end of the curve, the 1-Month T-bill yield rose by 8 bps to 0.13%, while the 1-year T-bill yield fell by 1 bp to 0.16%. The 2-year note finished at 0.16% after a yield decrease of 7 bps.

In terms of total returns, short-term corporate bonds returned 5.59% for the quarter. Intermediate corporates returned 7.63%. The total return for short-term municipal bonds was 2.38%, while intermediate-term muni bonds returned 3.19%. General obligation bonds outperformed revenue bonds.

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 risker, but has higher expected returns over time.

Thank you for your continued confidence and trust.