Q4-2021 Review Banner

2021 Q4 Market Review

Q4-2021 Review Banner

After a mixed third quarter, the final three months of 2021 returned to a theme of continued recovery for stock markets around the world. All major IFA equity indexes — across domestic, international and global real estate markets — landed on positive ground in the final quarter of the year. So did those tracking different asset classes, namely small caps and value-styled stocks. 

Of course, Q4 didn't come without its share of volatility. Indeed, previously high-flying tech stocks started the quarter with a quick dip as short-term inflation indicators jumped. As shown in the graphic below, however, stock investors who reacted in the moment to headlines warning about rising consumer prices and a slowdown in China's economic growth risked whipsawing their portfolios. By quarter's end, several equity indexes either hit or closed near all-time highs — again reinforcing the value of sticking to a strategic investment plan and not trying to outguess markets. 

For the year, all major IFA equity indexes finished with positive gains in 2021. While the U.S. Consumer Price Index jumped 6.81% in November from year-earlier levels, economists pointed out that global gross domestic production was also on-the-rise. Strong corporate earnings and increased consumer demand "completed the transition from recovery to expansion," noted market researchers at Dimensional Fund Advisors in an end-of-year summary of 2021. They added:

"This is a good reminder of the power of markets. Investors can't predict the nature or timing of the next crisis, or the end of any existing ones. But markets are forward-looking and reflect optimism. New challenges will await, but rather than guessing at what will happen, investors can choose to trust markets and their long-term prospects. The year 2021 was one that emphasized the benefits of discipline and diversification, of planning and perseverance, in a market that was uncertain (like markets in all the years before it)." 1

Domestic Equities

IFA benchmarks for large-cap and large-growth stocks continued to climb during the fourth quarter, finishing 2021 with strong double-digit percentage returns. So did large-cap value stocks, which ended the year up by more than 28%. Meanwhile, small value and core small cap IFA indexes returned 7%-plus in Q4, finishing as 2021's biggest domestic stock gainers. Both posted better-than 30% returns on the year. At the same time, the IFA benchmark tracking U.S. small-growth stocks generated slight gains in the final quarter. These stocks as represented by its IFA index lagged small value and large value for the year, but did manage to wind up with a healthy single-digit return. 

International (Developed) Equities

IFA index returns from developed international markets also showed a reversal from the previous quarter's negative to middling returns. The large-cap oriented IFA International Value Index had an almost 2 percentage point swing from Q3, ending the fourth quarter with a gain of nearly 2.5%. That helped push its 2021 return to almost 19%. At the same time, IFA small-cap blend and small-cap value indexes improved from the previous quarter's slight gains. Each finished the year with solid double-digit returns.

Real Estate Equities

Domestic equity real estate investment trusts gained more than 8% in Q4, according to Nareit, an industry trade group and data provider. Meanwhile, it listed real estate equity benchmarks covering international markets as rising by double-digits in the final quarter of 2021. The IFA Global REIT Index, which tracks both U.S. and foreign real estate markets, finished the fourth quarter with a returns of slightly more than 12%. For the year, such a benchmark finished ahead by almost 31%. 

Emerging Markets Equities

Just like developed foreign markets, stocks in emerging markets staged a fourth quarter rebound. Even the worst performer — the blended large-cap IFA Emerging Markets Index — finished on positive ground. Meanwhile, the IFA Emerging Markets Small Cap Index gained nearly a full percentage point in Q4. The IFA benchmark covering large cap value stocks based in developing countries also finished ahead in the quarter. Of note, all of the IFA emerging markets indexes wound up 2021 with positive results. In fact, the small-cap and value indexes both produced double-digit percentage gains on the year. 

Fixed-Income

In the fourth quarter, the 30-year U.S. Treasury rate decreased by 0.14 of a percentage point to 1.90%. Meanwhile, the 10-year U.S. Treasury rate rose by 0.04 of a percentage point to 1.52% while the five-year U.S. Treasury rate increased by 0.33 of a percentage point to 1.26%. 

For Q4, movement in IFA's key fixed-income benchmarks followed a rise in the longer-end of the yield curve. Since prices move inversely to yields, it's not suprising to see the biggest sequential shift come in the IFA Five-Year Global Fixed Income Index. After a slightly positive Q3, the intermediate-term benchmark finished the fourth quarter with a slightly greater than -1% total return. The final quarter of the year found shorter-term bonds, which predominate the fixed-income side of IFA Index Portfolios, with better results. For example, the IFA One-Year Fixed Income Index slid the least in the quarter. It's also worth noting that three of these key IFA Fixed-Income benchmarks wound up 2021 with the same total returns as produced in the fourth quarter. 

IFA Index Portfolios

With a global economic rebound resuming in the fourth quarter, all IFA Index Portfolios surveyed below finished 2021 with positive results. All of the returns of the IFA Index Portfolios shown below are net of the maximum annual 0.90% advisory fee through Dec. 31, 2021.

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 IFA's Performance Monitoring Report (PMR). 

The wealth of IFA's educational materials are available for Apple iOS and Android devices via the IFA App. This free App is available to download from both the Apple App Store and the Google Play Store for Android. 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 Shopify.

Footnote:

1.) Dimensional Fund Advisors, "Market Review 2021: A Recovery Amid Challenges," Jan. 5, 2022. 


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/