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2020 Q4 Market Review: IFC

Q4 2020 Review Banner Blank

Stock markets around the world continued to rally in 2020's fourth quarter. As epidemiologists raced to bring out vaccines to fight the coronavirus, patient investors who stuck with their strategic IFC investments were rewarded.

It was an unprecedented year. A strong opening that included unemployment hitting a 50-year low was followed by a swift double-digit drop in stocks in February amid a surge in coronavirus cases. (See chart below.) In 2020's first quarter, the IFC U.S. Social Core Equity Index wound up losing 26.41% and the IFC International Social Core Equity Index fell by more than 28%.

Both IFC benchmarks started to recover in late March as companies adapted and millions of workers learned how to remain productive in the face of what medical authorities characterized as the worst pandemic since 1918. As summer came to an end, the blue-chip S&P 500 was breaching pre-pandemic levels.  

As it turned out, even as the coronavirus spread, a rising tide of medical and technological innovations -- including the unprecedented and rapid development of a vaccine -- whipsawed investors who focused on a barrage of gloom and doom headlines about the market's fall. The comeback in global stocks gained steam in subsequent quarters and continued to produce healthy gains across key asset classes as tracked by IFC's global indexes. Not even a contentious presidential election wound up derailing a fourth quarter domestic equity rally.

The Q4 rebound was characterized by strong outperformance of the size and value premiums relative to growth-styled stocks. (See table below.) As represented by widely tracked domestic Russell indexes, small cap investors were especially rewarded in this period. In particular, those who didn't bail on small-cap value stocks came out ahead. Also, notice how large value equities outperformed as compared to large growth. 

Evidence-based research by Nobel Laureates such as Eugene Fama and Harry Markowitz have shown how harmful it can be to manage bouts of volatility by trying to time markets. IFA President Mark Hebner refers to such traders as "Time Pickers." (See Step 4 of his book, "Index Funds: The 12-Step Program for Active Investors.") 

Knowledge and information can contribute to reducing fear, helping you to make more rational and disciplined choices. Along these lines, IFC's wealth advisors recommend that investors check to make sure they've got the right portfolio mix between stocks and bonds. After all, life changes and so do individual circumstances. 

IFC Indexes

Domestic and international stocks continued to climb in the fourth quarter as all of IFC's equity indexes landed on positive ground. In all cases, IFC equity index returns were even stronger than the previous quarter. Emerging markets led the way, producing a double-digit percentage gain (21.30%). On the low side, the IFC benchmark covering global REITs generated a return of 10.76% in the quarter. Meanwhile, bonds as tracked by the IFC Social Fixed Income Index gained 0.69%, down from Q3's 1.01% return. 

IFC Risk-Based Index Portfolios

All of the returns of the IFC Index Portfolios shown below are net of the maximum annual 0.90% advisory fee through Dec. 31, 2020. With upbeat performances across key IFC equity and fixed-income categories following an economic slowdown earlier in the year, portfolios across-the-board finished 2020 with positive results.

Investing for Catholics' process for evaluation, selection and recommendation of investments is shaped by our extensive research into the areas of historical long-term investment success, with consideration to the tenets of Modern Portfolio Theory and the Multi-Factor Model developed by professor Eugene Fama and another leading academic, Kenneth French.

The findings that make up this important compilation of research reveal that longer-term returns are not driven by price speculation, but rather arise from a portfolio's specific exposure to defined factor premiums (market, size, value, profitability and high investment levels).

This sound reasoning provides support for the primary goal to capture market returns at minimal expense. Such a goal can be accomplished by abandoning efforts to beat the market and buy the market through risk-appropriate doses of index funds that are passively managed, style pure, low cost and are screened to adhere to socially responsible guidelines.

Each quarter, we monitor our recommended funds for clients. As part of that process, we've developed a rating system. For a summary of those results, please feel free to check our Performance Monitoring Report (PMR). 

We've also created an Investing Kit that includes a copy of "Index Funds: The 12-Step Recovery Program for Active Investors" book and a documentary film based on the book. It also comes with a Galton Board (Stock Market Edition), which simulates the random distribution of 600 monthly returns of the IFA Index Portfolio 100. You can find the Investing Kit on Amazon.


A graphic in this article ("As Much of 2020 That Fits on One Page") was republished here with permission of Avantis Investors. No further republication or redistribution is permitted without the consent of Avantis Investors. 

Performance results for actual clients that invested in accordance with the IFA Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFA's advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower advisory fees, varying custodian fees, and/or the timing of fee deductions.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you. For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/