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The 2nd Quarter of 2015 in Review

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The 2nd Quarter of 2015 was quite a tumultuous one. With concerns over Greece, markets experienced significant volatility late in the quarter. For those investors who were able to ride out the volatility, they were rewarded in terms of performance. European stocks, the S&P 500, and the NASDAQ hit record levels in the month of April as jobless claims in the U.S. economy hit their lowest levels in the past 15 years. Homebuilding within the U.S. saw highest pace of growth since it reached its peak in 2007. Outside the U.S. borders, we saw China experience their slowest pace of growth since 2009 while the Eurozone GDP growth accelerated to its fastest levels in over two years, mainly through the French and Italian economies. While the news had our eyes glued to the Greek debt crisis yet again, it is very important to keep the crisis in perspective. We recently published an article highlighting our thoughts and advice for investors who are concerned about the situation in Greece. Interestingly enough, Greece was one of the top performing countries in the 2nd Quarter, returning 6.61% in terms of the U.S. dollar.

In terms of overall market performance, investors have been rewarded year to date by being diversified globally and across the size and relative-price asset classes. The developed market outside of the U.S. is still leading the global market, well ahead of its historical averages.

IFA Indexes

Domestic Equities

While Small Cap stocks led their large counterparts in the 1st Quarter of 2015, results were mixed for the 2nd Quarter. Large Cap Value stocks led the way returning 1.47% with Large Cap Growth stocks having the worst performance, returning -0.21%. Small Cap Value stocks underperformed their growth counterparts by 0.25%. As of the end of Q2 2015, growth stocks have outperformed value stocks since the beginning of the year with Small Cap Growth delivering the highest performance of 6.59%.

For the blend of domestic equity indexes used in the IFA Index Portfolios, the quarterly return of 0.46% outpaced the U.S. Total Market (0.08%).

International (Developed) Equities

On the international front, the quarterly returns for the different size and styles of international developed equities ranged from 2.48% to 5.24%.

Countries that led the way included Ireland, Hong Kong, Norway, the United Kingdom, and Japan. Biggest laggards were Sweden, Finland, Germany, Australia, and New Zealand1.

For the blend of international indexes used in the new IFA Index Portfolios, the quarterly return was 4.30%, ahead of the MSCI World ex US Index (0.48%) given the returns of the small cap and small cap value segment of the international developed market.

Emerging Markets

Emerging Markets continued their positive performance into the 2nd Quarter, returning 0.69% overall (MSCI Emerging Markets Index).

The quarterly returns for the different size and styles of emerging markets equities ranged from -0.13% to 1.97%, with Emerging Markets Small Cap stocks leading the way.

Top performing countries included United Arab Emirates (UAE), Hungary, China, Russia, and Greece. Worst performing countries included India, Philippines, Malaysia, Egypt, and Indonesia1.

For the blend of emerging markets indexes used in the IFA Index Portfolios, the quarterly return was 1.26%, outpacing the overall Emerging Market (0.69%).

Real Estate

Real Estate Securities had a very difficult quarter, returning -7.90% globally. Most of this underperformance came from the domestic real estate market, which had a -10.00 quarterly return.

The IFA Real Estate Securities Index returned -7.54%, with aid coming from the real estate market outside of the U.S.

Fixed Income

Among fixed income securities, we saw expansion in interest rates across the yield curve in the 2nd Quarter. Returns of the four IFA Fixed Income Indexes ranged from -0.41% to 0.12%.

While this is nothing for investors to be concerned about, it does serve as a reminder for why IFA controls our exposure to duration since it can be significant for investors holding longer-term bonds. As of quarter end, the Barclays Long U.S. Government Bond Index has returned -4.52%.

For the blend of fixed income used in the IFA Index Portfolios, the quarterly return was -0.04% mainly due to the negative contribution of the IFA Five-Year Global Fixed Income Index.

IFA Index Portfolios

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

As we have always mentioned before, investors should not base their investment behavior on one quarter of market results. We cannot anticipate where the markets are going to go from here, so it is best to stick with your IFA Index Portfolio that is based on your overall capacity to take risk. We build our portfolios so that our investors have reliability in capturing the benefits that capitalism produces regardless of where it decides to rear its head. Last year, it was mainly in the largest companies in the United States. This year, it happens to be coming from the smaller companies within continental Europe. Don’t let the siren songs sway you into acting on the noise that is constantly produced by our financial media. Stay focused and keep your eye on the big picture. Most importantly, just relax. Should you have any questions about your account or the IFA Index Portfolios, feel free to contact your IFA Wealth Advisor or call us at 888-643-3133.

In addition, each quarter Mark Hebner summarizes the market’s performance in an IFA produced video. In the video below, he highlights the major news events, and demonstrates the difficulty in picking the next asset class winner.

1. Dimensional Fund Advisors, Quarterly Market Review, Second Quarter 2015, PowerPoint slides.