Dawn of Randomness

2022 Q1 Market Review

Dawn of Randomness

The first quarter of 2022 reiterated an important theme of index fund investing: the need for global diversification. 

Traders were rattled early in the year by reports of war raging in Ukraine as Russian forces kept bombing key cities and millions of refugees flooded into neighboring eastern European countries. Inflation also spread throughout the developed world as prices kept going up for everything from oil to cars as well as bread and butter.

In a topsy-turvy first quarter, short-term market volatility didn't impact all equity markets in the same fashion. As a result, patient investors — as opposed to anxious traders (i.e.,"time pickers") — were able to spread much of their portfolio risks between different types of assets. 

As you can see below in our breakdown of Q1's returns across major IFA Indexes and Index Portfolios, the quarter's fall was rather uneven between asset classes. For example, notice how the growth-styled U.S. stock benchmarks — whether large- or small-cap focused — slid by double digits. At the same time, indexes covering large- and small-cap value equity markets wound up Q1 only slightly in the red. Interestingly, we saw a similar pattern take place in our stock benchmarks that tracked developed international and emerging markets. 

The value of diversification also proved to be a strong element of fixed-income's Q1 story. As related in the following tables recapping the quarter's results, shorter-term bonds took less of a hit than even intermediate-term bonds (as captured by key IFA Fixed-Income Indexes). Again, this bout of volatility in bonds served to reinforce the value of sticking to a strategic investment plan and not trying to outguess markets. 

Domestic Equities

IFA value benchmarks for U.S. stocks withstood shaky market conditions better than sister growth-styled indexes in 2022's first quarter. While small-cap growth equities took the biggest hit among major IFA domestic indexes in the opening three months, the IFA U.S. Large Growth Index lost slightly more than 10%. But small- and large-cap value stocks as measured by IFA's indexes slipped by much less — losing 0.11% and 0.35%, respectively. Of note: The Q1 results marked a reversal following the fourth quarter's healthy gains across key asset classes. Also worth observing is the fact that IFA's blended indexes covering both value and growth stocks provided better shelter to Q1's storm than pure exposure to growth-styled stocks. 

International (Developed) Equities

While domestic stock indexes lost ground in Q1, the IFA International Value Index wound up generating positive returns. This benchmark focuses on large-cap value equities from companies based in developed foreign markets. Meanwhile, IFA indexes tracking small-cap international stocks posted negative returns. Still, small-cap value turned out to hold up somewhat better than blend styled small-cap fare. All three benchmarks were sequentially down from the final quarter of 2021, although the international developed large-cap value index slowed slightly from the previous quarter. 

Real Estate Equities

After gaining more than 12% in last year's final quarter, the IFA Global Real Estate Index fell by more than 4% in Q1. The benchmark tracks U.S. and foreign real estate markets. Real estate equities slumped in both the U.S. and internationally, although a review of global real estate markets by Dimensional Fund Advisors found that foreign real estate stocks generally outperformed domestic REITs in the first quarter.  

Emerging Markets Equities

Just like in U.S. and developed foreign stock markets, value-styled IFA equity indexes outperformed. In fact, the larger-company focused IFA Emerging Markets Value Index finished Q1 in the black. Meanwhile, the blended large-cap IFA Emerging Markets Index and its sister IFA Emerging Markets Small Cap Index both stumbled in the quarter. Those outcomes represented a reversal from the previous quarter's gains. Of note, however: The IFA Emerging Markets Value Index managed to produce a slightly higher positive return than produced in the fourth quarter of 2021 (0.53% vs. 0.43%). 


In the first quarter, the 30-year U.S. Treasury rate increased by 0.43 of a percentage point to a rate of 2.44%. Meanwhile, the 10-year U.S. Treasury rate rose by 0.69 of a percentage point to 2.32%. The opening quarter of 2022 also saw the five-year U.S. Treasury rate increase by 1.05 percentage points to 1.26%. 

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. Likewise, it's worth pointing out that shorter-term bonds as measured by IFA's indexes held up better in the first quarter's downdraft. In particular, the IFA One-Year Fixed-Income Index and the IFA Two-Year Global Fixed Income Index slumped by 1.24% and 2.03%, respectively. Moving out a little bit farther on the yield curve, the IFA Short-Term Government Index slid by 3.57% and the Five-Year Global Fixed-Income Index dropped 4.59% in Q1. 

IFA Index Portfolios

With a global economic slowdown impacting equity and fixed-income markets, all IFA Index Portfolios surveyed below finished 2022's opening quarter with negative results. All of the returns of the IFA Index Portfolios shown below are net of the maximum annual 0.90% advisory fee through March 31, 2022.

Also, it's probably worth pointing out that shorter-term data tend to produce rather "noisy" results from a statistical perspective. Along those lines, notice how all of the Q1 returns landed at -3.08%. That's due to the fact that returns in this table were rounded to the nearest hundredth of a percent. To dig a little deeper, IFA Index Portfolio 100 generated a Q1 return of 3.0836%. At the same time, IFA Index Portfolio 10 came in at 3.0777%. In other words, all of these portfolios didn't produce exactly the same outcomes, but the quarter's turbulence was widespread enough to tightly cluster returns over such a short period of time. 

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.

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.

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