Investment Review

Winter 2020

In the final quarter of the decade, stocks continued their upward march. Emerging market stock was the performance winner, up nearly 12% for the quarter. While U.S. bonds were flat, rising just 0.1%, bonds of countries outside the U.S. were down 1.1%.

This article summarizes the performance of various asset classes during the fourth quarter of 2020, and for the 12-month period ending December 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	Q4 2019	12 Months Ending 12/31/2019
U.S. Large Cap Vanguard 500 Index Fund	+9.1%	+31.5%
U.S. Large Cap Value iShares Russell 1000 Value Index	+7.3%	+26.1%
U.S. Small Cap iShares Russell 2000 Index	+9.9%	+25.4%
U.S. Small Cap Value iShares Russell 2000 Value Index	+8.4%	+22.0%
International Vanguard Total International Stock Index Fund	+9.0%	+21.5%
Emerging Markets Vanguard FTSE Emerging Markets ETF	+11.9%	+20.8%
U.S. REITs Vanguard REIT ETF	+0.6%	+28.9%
Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF	+0.1%	+8.5%

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 fourth quarter. Looking at broad market indices, U.S. equities outperformed non-U.S. developed markets but underperformed emerging markets. Value stocks underperformed growth stocks in all regions. Small caps outperformed large caps in the U.S. and non-U.S. developed markets but underperformed in emerging markets. REIT indices underperformed equity market indices in both the U.S. and non-U.S. developed markets.

U.S. Stocks

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

International Developed Market Stocks

In U.S. dollar terms, developed markets outside the U.S. underperformed both the U.S. equity market and emerging markets equities 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 outperformed developed markets, including the U.S., in the fourth quarter. Value stocks underperformed growth stocks. Small caps underperformed large caps.

Real Estate Investment Trusts

U.S. real estate investment trusts (REITs) underperformed non-U.S. REITs in U.S. dollar terms during the fourth quarter.

Fixed Income

Interest rate changes were mixed in the U.S. Treasury market during the fourth quarter. The yield on the 5-year Treasury note increased 14 basis points (bps), ending at 1.69%. The yield on the 10-year note rose 24 bps to 1.92%. The 30-year Treasury bond yield increased 27 bps to 2.39%.

On the short end of the yield curve, the 1-month Treasury bill yield decreased to 1.48%, while the yield on the 1-year bill dipped 16 bps to 1.59%. The 2-year note yield finished at 1.58% after a decrease of 5 bps.

In terms of total returns, short-term corporate bonds gained 0.95%. Intermediate corporate bonds had a total return of 1.10%.

The total return for short-term municipal bonds was 0.84%, while intermediate-term munis returned 0.93%. General obligation bonds outperformed revenue 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.