The First Quarter of 2014 in Review

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In the first quarter of 2014, risk was rewarded, but not to the extent to which we may have become accustomed to in 2013. With the exception of emerging markets and emerging markets value, all of the specific IFA indexes had a positive return. The strongest showing came from real estate, but there is no single news item that appears to explain it. As expected, Janet Yellen took over as Chairman of the Federal Reserve from Ben Bernanke, and she is continuing with the tapering of Quantitative Easing. The bond market would appear to be OK with this, as the 10-Year Treasury yield went from 3.0% at the beginning of 2014 to 2.7% at the end of the quarter. On the international front, the biggest story was Russia taking the Crimean peninsula away from Ukraine. From all appearances, this is just the beginning of Putin’s exercise of Russia’s military power, without any regard for how “18th century” he appears.

Domestic Equities

For the different sizes and styles of domestic equities, the quarterly returns ranged from 0.78% for large growth to 2.17% for small value. 

For the blend of domestic equity indexes used in the new IFA Index Portfolios, the quarterly return was 1.57% which slightly lagged the 2.03% return of the overall market.

International (Developed) Equities

Despite increasing uncertainty in Europe with a resurgent Russia and the looming possibility of renewed conflict in Korea, international equities put in a strong showing for the quarter, particularly for small cap value.

For the blend of international indexes used in the new IFA Index Portfolios, the quarterly return was 3.80%.

Emerging Markets

Facing unusually high volatility in currency exchange rates, emerging markets delivered a mixed bag, as seen below.

For the blend of emerging markets used in the new IFA Index Portfolios, the quarterly return was 1.00%.

Real Estate

The first quarter was a strong one for real estate with the IFA Real Estate Index delivering a return of 7.58%. This index is a blend of domestic real estate which returned 10.24% and international real estate which returned 3.78%.

Fixed Income

Given that there were no significant surprises from the Fed, fixed income held steady, delivering a positive return for the quarter.

For the blend of fixed income used in the IFA Index Portfolios, the quarterly return was 0.36%. Once again, it is important to note that bond yields remain at low levels relative to their historical averages.

IFA Index Portfolios

Putting it all together, the returns of the IFA Index Portfolios are shown below, net of one quarter’s worth of IFA’s annual 0.90% advisory fee.