IFA Q3 2017 Review

2017 Q3 Market Review

IFA Q3 2017 Review

Markets delivered strong positive results across the board in the 3rd Quarter of 2017. International Developed Markets and Emerging Markets continued their outperformance of the U.S. In the U.S., companies posted profit growth not seen in close to six years, factory-sector activity hit a six-year high, and GDP rose 3.1%.

Outside our borders, Eurozone industrial output rose at the fastest rate in the last six years, the Euro jumped to 2-year high, which has been fueling International outperformance for the year, and Eurozone Consumer Sentiment hit a 16-year high.

Domestic Equities

For the different size and styles of domestic equities, the quarterly returns ranged from 4.61% for large cap value stocks to 5.42% for small cap value stocks. Year-to-date, large cap-growth stocks have been the top performers (20.33%) while small-cap value stocks have been the worst performers (4.87%).

For the blend of domestic equity indexes used in the IFA Index Portfolios, the quarterly return was 5.04% for Q3. This outperformed the US market as a whole (as measured by the Russell 3000 Index), which delivered 4.57% in Q3.

International (Developed) Equities

On the international front, equities from our developed counterparts outside of the US had another strong quarter. In Q3, results ranged from 6.98% for international small cap stocks to 8.30% for international value stocks. Year-to-date, international stocks have delivered strong results ranging from 19.60% (international value stocks) to 24.51% (international small cap stocks).

Returns by country in Q3 ranged from -8.21% (Israel) to 18.36% (Norway). Top performing countries included Norway (18.36%), Italy (13.65%), Portugal (10.94%), Austria (10.21%), and the Netherlands (9.35%). The worst performing countries included Israel (-8.21%), Switzerland (2.09%), New Zealand (2.49%), Australia (3.29%), and Singapore (3.41%).

For the blend of international indexes used in the IFA Index Portfolios, the return was 7.63% in Q3. This outperformed the international developed market as a whole (as measured by the MSCI World ex US Index), which delivered a return of 5.62% in Q3.

Emerging Markets

The Emerging Markets continued their strong performance Q3 of 2017. For Q3, the returns ranged from 5.56% for emerging markets value stocks to 6.40% for emerging markets large cap stocks. Year-to-date, returns have ranged from 23.95% (emerging markets value stocks) to 27.38% (emerging markets large cap stocks).

Returns by country in Q3 ranged from -12.37% (Pakistan) to 23.78% (Brazil). Top performing countries included Brazil (23.78%), Russia (17.40%), Chile (17.26%), Peru (15.59%), and China (14.49%). Worst performing countries included Pakistan (-12.37%), Greece (-8.77%), Qatar (-6.82%), Indonesia (-1.56%), and Turkey (0.61%).

For the blend of emerging markets indexes used in the IFA Index Portfolios, the return for Q3 was 6.02%. Our blend underperformed the Emerging Markets as a whole (as measured by the MSCI Emerging Markets Index) during Q3, which delivered a 7.89% in Q3.

Real Estate

Global real estate securities delivered positive results in Q3. International REITs continued to lead the way delivering a return of 1.48% in Q3 versus its U.S. counterpart, which delivered a return of 0.38%.

Fixed Income

Interest rates in US income markets essentially remained unchanged during Q3. 5-year US Treasuries increased by 3 basis points (1.92% yield) while 30-Year US Treasuries increased by 2 basis points (2.86%).

For Q3, the four fixed income funds used by IFA delivered positive returns ranging from 0.29% for 1-year bonds to 0.55% for 5-year global bonds.

For the blend of fixed income used in the IFA Index Portfolios, the return was 0.36% for Q3.

IFA Index Portfolios

Putting it all together, the returns of the IFA Index Portfolios are shown below net of three quarter’s worth of IFA’s maximum annual 0.90% advisory fee for the year-to-date numbers.

What investors need to remember is that there will always be periods in which their IFA Index Portfolios will underperform in the short-term. This is the very nature of taking risk. Given the recent underperformance in U.S. Small Cap Value stocks compared to U.S. Large Cap Growth stocks, many investors may be wary about their asset allocation. The chart below shows rolling period return of the IFA U.S. Small Cap Value Index versus the IFA U.S. Large Cap Growth Index. Over any given month, the odds of U.S. Large Cap Growth stocks outperforming are slightly less than a coin flip. But once we expand our view to longer time horizons, you can see that a disciplined approach yields favorable results for the globally diversified investor.

Each Quarter, IFA monitors the funds they recommend for clients and as part of that process, we’ve developed a rating system. Below is a link to our Performance Monitoring Report for client portfolios: IFA 3rd Quarter 2017 IFA Client Performance Monitoring Report.

We recently created the IFA Index Funds Investing Kit that includes a copy of Index Funds: The 12-Step Recovery Program for Active Investors book, the documentary, as well as The Random Walker, which simulates market outcomes right before your very eyes. You can find both through Amazon.