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The First Quarter of 2015 in Review

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2015 has been a hallmark year for diversification so far. In Q1, we saw international developed and emerging markets outpace their domestic counterparts. During the quarter, the European Central Bank announced its own “quantitative easing” program, aiming at buying €60 billion of asset purchases each month until September of 2016. Subsequently, the Euro weakened to near parity levels with the US dollar, losing 11.30% during the quarter as reported by Bloomberg. In the United States, job growth reported in early-January indicated that 2014 was the strongest year of job growth the country has seen since 1999. The Federal Reserve also stated in March that it would maintain their current course and not look to change strategy until “it has seen continued improvements in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”

IFA Indexes

Domestic Equities

For the different sizes and styles of domestic equities, the quarterly returns ranged from -0.21% for large value to 3.99% for small cap. Small cap and small cap value have outpaced their large cap equivalents by over 3.00%.

For the blend of domestic equity indexes used in the new IFA Index Portfolios, the quarterly return was 2.61%, ahead of the 1.80% return of the overall market.

International (Developed) Equities

On the international front, the quarterly returns for the different size and styles of international developed equities ranged from 3.89% to 4.68%.

For the blend of international indexes used in the new IFA Index Portfolios, the quarterly return was 4.23%.

Emerging Markets

Emerging markets reversed their third and fourth quarter woes from 2014 and returned 2.24% overall.

For the blend of emerging markets used in the new IFA Index Portfolios, the quarterly return was 1.71%

Real Estate

Real estate has continued their strong run from 2014 into 2015. Global Real Estate equities returned 4.02%, making it the second highest performer for the first quarter of 2015.

Fixed Income

The four fixed income funds used by IFA followed a clear pattern of higher duration funds delivering higher returns in the first quarter.

For the blend of fixed income used in the IFA Index Portfolios, the quarterly return was 0.73%. 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 maximum annual 0.90% advisory fee.

One important thing to keep in mind when reading these quarterly reviews is that one quarter (or even one year) is absolutely meaningless in determining overall relative performance among asset classes or portfolios consisting of those asset classes. In 2014, domestic equities, mainly large cap stocks, were some of the highest performing asset classes. So far this year, the opposite has been true, with the rest of the world outpacing the US. The key point to remember is that we do not know which part of the world will outperform the other, which is why it is important to be globally diversified and not focus on one particular index, like the S&P 500. The two charts below show how the probabilities (based on historical returns data) drastically change as the time period increases.


Mark Hebner summarizes the market's performance during the first quarter of 2015, highlights the major news events, and demonstrates the difficulty in picking the next asset class winner.