In early March, we sent out an email announcing our plans to migrate our technology to cloud-based software, which will positively change the way that we deliver our services. The time has come, and we will be rolling out these exciting changes over the next few months. With these advances in our technology, we will be able to offer our services to a much larger segment of the population.
During the past quarter, international markets have bounced back, with U.S. real estate and small stocks showing strong returns as well. The following chart shows the 3-month, 5-year, and 10-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending March 31, 2015
|DFA Fund / Index||3 Month Return||5 Year Return*||10 Year Return*|
|S&P 500 Index||0.95||14.47||8.01|
|DFA U.S. Large Value||-0.21||14.80||8.06|
|DFA U.S. Small||3.99||16.04||9.82|
|DFA U.S. Small Value||2.44||14.72||8.50|
|DFA Real Estate (REITs)||4.76||15.80||9.43|
|DFA Int’l Large||4.22||5.80||5.11|
|DFA Int’l Large Value||4.14||4.62||4.98|
|DFA International Small||3.89||7.98||6.56|
|DFA Int’l Small Value||4.68||8.36||6.91|
|DFA Emerging Markets||1.48||2.25||8.62|
|DFA 5-Year Global Bonds||1.37||3.30||3.82|
|DFA Intermediate Gov’t Bonds||2.02||4.32||5.08|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
International stocks surged and helped our diversified portfolios keep up with the major U.S. stock indexes. If it was best to hold only big U.S. stocks in 2014, this year it has been better to own a wide mix of domestic and international stocks of all sizes. The Standard & Poor’s 500 Index gained just below 1 percent and the Dow lost ground. International stocks are up by over 4 percent and small U.S stocks by about 3 percent. Global real estate investment trusts are up by over 4 percent.
This illustrates the virtue of diversified investing. Since we don’t have an accurate crystal ball and can never predict which part of the market will outperform, it is better to own a variety of investments. Over time the winners pull up the performance of the whole portfolio. And when the stock market undergoes periodic declines, the diversified portfolio holds more of its value than does the market.
Some of the factors that held our portfolios back during the last six months of 2014 have continued into 2015. The U.S. dollar remains strong and interest rates are still low.
We don’t believe that any of us can predict how or when shifts in investment markets will occur. Reinforcement to that belief continues to come from studies of how poorly the brightest minds in the investment markets do when they try to make predictions.
One such example was published just recently by The New York Times under the headline “How many mutual funds routinely rout the market? Zero.” The March 14 story noted that not one of 2,862 actively managed U.S. stock funds stayed in the top 25 percent of funds during the five years ending in 2014. These are the best and brightest and most highly-paid managers on Wall Street and they failed to keep up with the indexes. If they can’t do it, we are pretty sure that you can’t and we can’t either. We would rather hold a diversified portfolio that is less risky than the overall market and enjoy a reasonable investment return without risking making costly mistakes.
While it appears probable that the Federal Reserve will finally begin raising short-term interest rates later this year, even that is not a certainty. Even if they do, we have no idea how short-term rates will affect the stock and bond markets. You can make a good case for gains or losses depending on the speed of the increases and the general state of the domestic and world economies at the time rates go up. Again, a diversified portfolio should help us through just about any scenario that unfolds: we own investments that will benefit from rate moves either way.
Now, in order to comply with the provisions of the Gramm-Leach-Bliley Act, we are enclosing a copy of SWM’s Privacy Statement for your review. The Privacy Act requires that we deliver this to every client on an annual basis.
Also, our updated ADV Part 2 is now available on the “Regulatory Compliance” page of our website (www.SparrowWealth.com). Since there were several material changes in this update, we have included a copy of our ADV Part 2 with this quarterly mailing. Please feel free to call us with any questions.
Enjoy your spring!
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.