Investment Review
Winter 2021
Our Winter 2021 Investment Commentary provides a history of the 2020 stock and bond market with an overlay on the unprecedented events of the year. Please read it for context. This article discusses specific asset class returns.
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 2020 | 12 Months Ending 12/31/2020 |
| U.S. Large Cap Vanguard 500 Index Fund |
+12.15% | +18.37 |
| U.S. Large Cap Value iShares Russell 1000 Value Index |
+16.26% | +2.73% |
| U.S. Small Cap iShares Russell 2000 Index |
+31.30% | +20.03% |
| U.S. Small Cap Value iShares Russell 2000 Value Index |
+33.31% | +4.66% |
| International Vanguard Total International Stock Index Fund |
+16.90% | +11.28% |
| Emerging Markets Vanguard FTSE Emerging Markets ETF |
+16.60% | +15.19% |
| U.S. REITs Vanguard REIT ETF |
+9.28% | -4.68% |
| Investment-Grade Bonds iShares Core Total U.S. Bond Market ETF |
+0.73% | +7.48% |
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, emerging markets outperformed non-US developed markets and US equities.
Value outperformed growth across regions. Small caps outperformed large caps across regions as well.
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 but underperformed non-US developed markets and emerging markets.
Value outperformed growth across large and small cap stocks.
Small caps outperformed large caps.
REIT indices underperformed equity market indices.
International Developed Market Stocks
Developed markets outside the US posted positive returns for the quarter, outperforming US equities but underperforming emerging markets.
Value outperformed growth.
Small caps outperformed large caps.
Emerging Markets Stocks
Emerging markets posted positive returns for the quarter, outperforming the US and developed ex US equity markets.
Value outperformed growth.
Small caps outperformed large caps.
Real Estate Investment Trusts
US real estate investment trusts underperformed non-US REITs during the quarter.
Fixed Income
Interest rate changes were mixed in the US Treasury fixed income market during the fourth quarter of 2020. The yield on the 5-Year US Treasury note increased 8 basis points (bps), ending at 0.39%. The yield on the 10-Year Treasury increased 29 bps to 0.93%. The 30-Year US Treasury bond yield increased 18 bps to finish at 1.64%.
On the short end of the yield curve, the 1-Month US Treasury bill yield remained unchanged at 0.08%, while the 1-Year US T-bill yield decreased 1 bps to 0.13%. The 2-Year US Treasury note yield finished unchanged at 0.09%.
In terms of total returns, short-term corporate bonds added 1.14%. Intermediate-term corporate bonds returned 1.76%.
The total return for short-term municipal bonds was 0.44%, while intermediate-term muni bonds returned 1.36%. Revenue bonds outperformed general obligation 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 a higher expected return over time.
Thank you for your continued confidence and trust.
