Q1 2020 Market Review

Tuesday, May 5, 2020 1,335 views

As 2020's first quarter was winding down, a global pandemic threatened an 11-year bull market for U.S. stocks. Spurred by a rapidly spreading coronavirus, investment fears that "this time is different" rippled through markets. 

Volatility is a given and a normal part of investing. But the sudden and dramatic drop in stocks across the world came at the tail end of a quarter in which equity funds had been showing positive returns. Uncertainty about when the Covid-19 bug would be cured led to double-digit drops in domestic stock indexes during the initial two weeks of the outbreak. 

Several noted hedge fund managers issued gloomy warnings, urging investors to start wheeling and dealing in their portfolios. Those who were able to tune out such short-term headline noise, though, found reason to view such developments through a more objective perspective.

For example, researchers at Dimensional Fund Advisors looked at past market declines through 2019, starting at any day since 1926. They wanted to see what average returns were after those declines in one-, three- and five-year periods for the Fama/French U.S. Total Market Index. The results should contribute to reducing your fears of current market volatility.

Numerous studies have shown the deleterious impact of flinching during market volatility. A study of our own clients' behavior during the 2008-2009 downturn explains why staying the course is not only wise, but critical. IFA Founder and President, Mark Hebner, also elaborates on this study in his recent video that provides a history of stock market activity and epidemics. Please take the time to delve into these important concepts. 

Knowledge and information can contribute to reducing fear, helping you to make more rational and disciplined choices.    

Domestic Equities

After a strong finish to 2019, all IFA U.S. stock indexes slumped in the opening three months of a new year. The returns in Q1 slid to double-digit losses as IFA domestic equity indexes dropped in a range of -39.19% (small-cap value) to -13.73% (large-cap growth). The turnaround was particularly notable across styles as earlier strength in the quarter gave growth stocks a leg up over value-oriented fare.   

International (Developed) Equities

IFA index returns from developed markets that are outside the United States all turned negative in Q1, reversing course from the previous three-month period. In Q1, results ranged from a loss of 33.70% for international small-cap value equities to a -30.21% return for international small-cap blended stocks. In 2019's fourth-quarter, IFA indexes were all positive, including  a gain of 12.25% by international small-cap blended equities and a return of 11.81% for international small-cap value stocks. 

Real Estate Equities

Global real estate was another slumping performer in Q1. In the first quarter, IFA's Global REIT Index returned -26.63%. By comparison, 2019's Q4 finished with a slight gain of 1.61%. 

Emerging Markets Equities

Emerging Markets also had a rough start to 2020. For Q1, emerging markets returns ranged from a loss of 31.89% for emerging markets small-cap value equities to a drop of 31.56% for emerging markets blended small-cap stocks. By comparison, the previous quarter saw returns land in positive territory.  

Fixed-Income

In the first quarter, the 30-year U.S. Treasury rate decreased by 1.04 percentage points while the five-year U.S. Treasury rate decreased by 1.32 percentage points.

For Q1, the four bond benchmarks reviewed by IFA all produced positive returns. Those ranged from 0.43% for the IFA Short-Term Government Index to 0.19% for the IFA Five-Year Global Fixed Income Index. 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 March 31, 2020. Despite positive performances across fixed-income categories, each portfolio declined in Q1.

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: First Quarter 2020 IFA Client Performance Monitoring Report.

We've created the Investing Kit that includes a copy of "Index Funds: The 12-Step Recovery Program for Active Investors" book and documentary film based on the book, as well as the Galton Board, Stock Market Edition, which simulates the distribution of 600 monthly returns right before your very eyes. 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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