2020 Q2 Market Review

Wednesday, July 29, 2020 439 views

In the opening three months of 2020, the outbreak of a global coronavirus pandemic left financial markets reeling. In April, however, investment sentiment dramatically reversed course. By the second quarter's end, such a rising tide lifted most major equity asset classes.

Blue chip domestic stocks as represented by the IFA U.S. Large Company Index, for example, gained 20.55% in the second quarter. That was a big rebound from Q1's nearly 20% slide. (For more details, see the video above.) 

Traders might've felt an emotional jolt or two during this particularly turbulent first half of 2020. By contrast, savvy investors who were putting their money into diversified index fund portfolios weren't surprised by roller coaster-like market volatility.

Consider the interactive chart below. You can click on different IFA Index Portfolios and indexes providing exposure to various types of assets to compare how their returns changed over the past 50 years. Of particular note should be the risk and return trade-offs investors faced in allocating between stocks and bonds. The all-stock and globally diversified Index Portfolio 100, for instance, gained more than its cousin Index Portfolio 70. Mixing in some (30%) bonds, though, provided a smoother ride during this period by delivering a lower standard deviation, a common measure of risk.

Heightened portfolio returns come part and parcel with greater allocations to riskier assets. As we've stressed to our clients for years, there's no free lunch -- academic studies point to risk and return being tied at the hip, so to speak. 

So how can people choose a proper strategy to divvy up their portfolios between different types of asset classes and indexes? IFA's wealth advisors love to work with investors on just these sorts of questions. These are the types of issues they're trained to address. At the same time, you can jump start such an analysis by taking our online Risk Capacity Survey.  

Domestic Equities

After taking a drubbing in the initial three months of 2020, all IFA U.S. stock indexes rebounded to produce double-digit gains in the second quarter. The depth of such a turnaround was impressive by most measures. The weakest performers came in large value and large blend, which produced returns of 16.42% and 20.55%, respectively. Meanwhile, small growth (32.92%) and large growth (20.55%) were Q2's biggest outperformers.   

International (Developed) Equities

IFA index returns from developed markets that are outside the United States all turned positive in Q2, reversing course from the previous three-month period. In Q2, results ranged from a gain of 21% for international small-cap blend equities to a 15.42% return for international large-cap value stocks. In 2020's first quarter, IFA indexes were all negative with losses exceeding 30% across benchmarks. 

Real Estate Equities

Global real estate was another upbeat performer in Q2. In 2020's first quarter, IFA's Global REIT Index returned -26.63%. By comparison, the year's Q2 finished with a healthy gain of 12.60%. 

Emerging Markets Equities

Emerging Markets also had a strong rebound in 2020's second quarter. For Q2, emerging markets returns ranged from a return of 26.52% for emerging markets small-cap blend equities to a gain of 19.68% for emerging markets blended large-cap stocks. By comparison, the previous quarter saw returns across-the-board land in strongly negative territory.  

Fixed-Income

In the second quarter, the 30-year U.S. Treasury rate increased by 0.06 of a percentage point while the five-year U.S. Treasury rate decreased by 0.08 of a percentage point.

For Q2, most of the fixed-income benchmarks reviewed by IFA produced positive returns. Those ranged from 0.93% for the IFA Five-Year Global Fixed Income Index to 0.19% for the IFA One-Year Fixed Income Index. Meanwhile, the IFA Short Term Government Index was flat, finishing the quarter with a slight loss (-0.04%). If interest rates have fallen, the price of existing bonds can be expected to increase -- so that new buyers receive the same current yield as that available from newly issued bonds at the lower rate with similar maturities and risk levels.

IFA Index Portfolios

All of the returns of the IFA Index Portfolios shown below are net of the maximum annual 0.90% advisory fee through June 30, 2020. Despite positive performances across all equity categories and generally higher returns in fixed income, portfolios remained underwater through the initial six months of the year. 

Each quarter, IFA monitors the funds it recommends for clients. As part of that process, we've developed a rating system. Below is a link to our Performance Monitoring Report for client portfolios: Second Quarter 2020 IFA Client Performance Monitoring Report.

We've 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 Amazon.


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.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ 

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