The 2nd Quarter of 2016 in Review

Tuesday, July 26, 2016 7,425 views

The second quarter of 2016 was mixed in terms of good and bad news as well as performance. While the Eurozone experienced a big shock in terms of the unanticipated “Brexit” vote, the United States experienced falling jobless claims, increasing in consumer prices, and robust GDP growth. Although the US market experienced its worst start in recorded history, it has come back substantially and is net positive for the year as of timing of this particular article.

No doubt the “Brexit” vote left many investors unnerved. Severe short-term volatility is a natural byproduct of both unanticipated global market events as well as an instantaneous increase in uncertainty.  These types of events highlight the importance of having a globally diversified portfolio that properly matches risk exposure with risk capacity. Any mismatch between exposure and capacity can lead to more dire consequences in terms of investor behavior and subsequent knee-jerk reactions in changing our long-term financial plans. What is important to remember is that the market acts as an investor’s ally in terms of pricing and re-pricing securities so that there is a positive expected return. This pricing mechanism gives investors comfort in knowing that they are expected to be compensated for the risk they take in the marketplace, even when things seem to be out of control.

Domestic Equities

For the different size and styles of domestic equities, the quarterly returns ranged from 1.01% for U.S. large cap growth stocks to 4.36% for U.S small cap growth stocks. Year-to-date, returns have ranged from 1.35% for US large cap growth stocks to 4.10% for US large cap value stocks. In general, value has outperformed growth amongst small cap and large cap stocks.

For the blend of domestic equities indexes used in the IFA Index Portfolios, the quarterly return was 0.37% and 3.84% for the year. This blend has outperformed the entire US market, as measured by the Russell 3000 Index, which has delivered 3.60% for the year in comparison.

International (Developed) Equities

On the international front, equities from our developed counterparts outside of the U.S. had its second negative quarter in a row. Results ranged from -3.16% for international small cap value stocks to -0.90% for international large cap value stocks. Year-to-date, returns have ranged from -4.92% for international large cap value stocks to -0.75% for international small cap stocks.

Returns by country in Q2 ranged from -10.67% (Ireland) to 5.30% (New Zealand). Top performing countries included New Zealand (5.30%), Canada (4.72%), Norway (2.98%), Belgium (1.88%), and Switzerland (1.77%). The worst performing countries included Ireland (-10.67%), Austria (-9.24%), Portugal (-8.41%), Spain (-7.48%), and Sweden (-5.46%).

For the blend of international indexes used in the IFA Index Portfolios, the quarterly return was -1.74 and -3.21% year-to-date. This has underperformed the international developed market as a whole, as measured by the MSCI World ex US Index, which has delivered -1.05% in Q2 and -3.00% year-to-date in comparison.

Emerging Markets

For Q2, the returns in the Emerging Markets ranged from 1.28% for emerging markets value stocks to 3.64% for emerging markets small cap stocks. Year-to-date, returns have ranged from 8.98% for emerging market small cap stocks to 10.29% for emerging market value stocks.

Returns by country in Q2 ranged from -12.01% (Greece) to 18.19% (Peru). Top performing countries included Peru (18.19%), Brazil (14.44%), Philippines (6.74%), Russia (4.64%), and India (4.61%). Worst performing countries included Greece (-12.01%), Turkey (-7.84%), Mexico (-6.74%), Malaysia (-5.98%), and the Czech Republic (-5.92%).

For the blend of emerging markets indexes used in the IFA Index Portfolios, the quarterly return was 2.36% and 9.55% year-to-date. Our blend has outperformed the Emerging Markets as a whole, as measured by the MSCI Emerging Markets Index, which has delivered 0.66% in Q2 and 6.37% year-to-date in comparison.

Real Estate

Global real estate securities have been the top performing asset class for the year. US REITs have led the way, posting a 5.42% quarterly return and 10.82% return year-to-date. Not too far behind, International REITs delivered 1.31% for the quarter and 10.02% year-to-date.

Fixed Income

In general, we saw an overall flattening in the yield curve across the entire range of maturities for US bonds. Interest rates fell by 0.20%, 0.29%, and 0.31% for the US 5-Year, 10-Year, and 30-Year treasuries, respectively. We also saw credit spreads narrow among safer and riskier bonds of similar maturities. In terms of the four fixed income indexes used by IFA, returns ranged from 0.45% for the 1 Year Fixed Income Index to 2.32% for the 5 Year Global Fixed Index.

For the blend of fixed income used in the IFA Index Portfolios, the quarterly return was 0.65% and 1.91% year-to-date.

IFA Index Portfolios

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

 


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 2nd Quarter 2016 IFA Client Performance Monitoring Report


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