The 3rd Quarter of 2015 in Review

Thursday, October 15, 2015 4,739 views

The 3rd Quarter of 2015 could pretty much be summed up by one word: red. We saw a lot of it, all over the world, among pretty much all asset classes. While Greece was dominating the headlines during the 2nd Quarter of this year, those stories of uncertainty migrated some 5,700 miles east into China. With day-to-day market fluctuations that investors have not seen in over a decade in that region, intervention from the Chinese Central Bank and securities regulator could not fend off the selling frenzy that resulted in a net loss of approximately 24% for China in the 3rd Quarter alone. But not all news has been bad news around the globe. In fact, the United States reported what seemed like an onslaught of positive news including US Consumer prices rising for a sixth straight month, oil prices falling to six-year lows, increasing confidence levels in the economy, and a 3.9% GDP growth figure for the preceding quarter. Interestingly enough, returns on U.S. equities were still negative for the quarter. It is a sobering reminder for investors about the forward-looking nature of equity markets. In other words, markets do not care about what has happened but what will happen. And nobody can predict the future. It is also a reminder of what it means to take risk. While many investors haven’t experienced a similar quarter since 2011, it is something that can occur more often than you would think. As a long-term investor, it is important to not let these market movements provoke any action. Although it may be unnerving at times, it is the cost we must bear in order to reap the ultimate reward.

IFA Indexes

Domestic Equities

Among U.S. equities, small cap growth stocks were the best performing asset class (-5.84%) for the 3rd Quarter while small cap value was the worst performing asset class (-11.10%). In general, large cap stocks outperformed small cap stocks and growth outperformed value across the entire market. Small cap growth stocks are still leading the way, year-to-date, returning 0.37%.

For the blend of domestic equity indexes used in the IFA Index Portfolios, the quarterly return was -9.49%.

International (Developed) Equities

On the international front, the quarterly returns for the different size and styles of international developed equities ranged from -14.64% to -7.98%. In general, diversification into small cap equities has been of great benefit for investors. Year-to-date returns for the IFA Int’l Small Company and IFA Int’l Small Cap Value indices are 0.60% and -0.04%, respectively.

Countries that led the way included Ireland, Denmark, Italy, Israel, and France. Top laggards were Canada, Australia, Norway, Hong Kong, and Singapore. Individual country returns ranged from -18.79% (Singapore) to -1.12% (Ireland).

For the blend of international indexes used in the IFA Index Portfolios, the quarterly return was -10.60%.

Emerging Markets Equities

Emerging Markets experienced a tremendous sell-off in the 3rd Quarter. The quarterly returns for the different size and styles of emerging markets equities ranged from -19.16% to -15.54%, with Emerging Markets Small Caps leading the way.

Top performing countries included Hungary, Czech Republic, India, Qatar, and Poland. Top laggards included China, Columbia, Indonesia, Greece, and Brazil. Individual country quarterly returns ranged from -33.66% (Brazil) to -3.10% (Hungary).

For the blend of emerging market indexes used in the IFA Index Portfolios, the quarterly return was -16.92%.

Real Estate

Real Estate Securities were one of the top performing asset classes for the 3rd Quarter (0.00%). Domestic Real Estate securities returned 3.09% while International Real Estate Securities returned -4.29%.

Fixed Income

With global sell-off in equities, it is understandable that fixed income was the top performing asset class for the quarter. Among fixed income securities, we saw a contraction in interest rates across maturities. Quarterly returns for the four IFA Fixed Income Indexes ranged from 0.11% - 1.09%.

For the blend of fixed income used in the IFA Index Portfolios, the quarterly return was 0.53%, mainly driven by the strong performance of Five-Year Global Fixed Income (1.09%).

IFA Index Portfolios

Although fixed income provided a diversification benefit, most investors were unable to avoid the huge losses sustained in the global equity markets. The returns of the IFA Index Portfolios are shown below, net of three-quarters worth of IFA’s maximum annual 0.90% advisory fee.

 


 

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