During the first quarter of 2023, the best performing asset classes were international large stocks, U.S. large stocks, and international small value stocks. The following chart shows the 3-month, 1-year, and 20-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, 2023
|DFA Fund / Index||3 Month Return||1 Year Return*||20 Year Return*|
|S&P 500 Index||7.50||-7.73||10.37|
|DFA World Core Equity||6.22||-5.29||N/A|
|DFA U.S. Large Value||0.46||-5.00||9.97|
|DFA U.S. Small||3.15||-5.16||10.94|
|DFA U.S. Small Value||-0.06||-3.50||11.04|
|DFA Real Estate (REITs)||1.78||-19.42||9.22|
|DFA Int’l Large||7.93||-1.26||7.43|
|DFA Int’l Large Value||6.13||0.40||8.11|
|DFA International Small||6.38||-4.79||9.72|
|DFA Int’l Small Value||6.53||-1.34||9.97|
|DFA Emerging Markets Core||5.27||-9.05||9.77|
|DFA 5-Year Global Bonds||1.42||-0.76||2.32|
|DFA Inflation Protected Bonds||3.79||-6.03||N/A|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
Two of the largest bank failures in history, multiple interest rate increases by the Federal Reserve, and stubbornly high inflation led the headlines for the first quarter of 2023, and yet the stock and bond markets still rose by 7.06%* and 3.15%** respectively. The old Wall Street saying, “stocks climb a wall of worry” has rarely felt so true.
The quarter started with good economic news as the January and February jobs reports both provided a boost to the markets. This gave the Federal Reserve cover to continue raising interest rates by .25% in February and another .25% in March. Inflation has retreated with the most recent report reflecting 6%, down from a high of 9.1% last summer, but still well above the Federal Reserve’s preferred 2% benchmark.
By early March, the markets started to take notice of fleeing deposits from Silicon Valley Bank (SVB) and Signature Bank over concerns about the bank’s liquidity, which ultimately became a self-fulfilling prophecy. The Federal Reserve, FDIC, and Treasury orchestrated a swift takeover of each bank over the March 10th-12th weekend and took the extraordinary step of guaranteeing all deposits. This move, along with a new lending facility for other banks experiencing short-term liquidity issues, helped calm the markets.
These events further emphasize the importance of diversification in our investment strategy. SVB stock was only .04% of the Russell 3000 index, which represents almost the entire US stock market. Its stunning collapse ultimately had very little impact on our portfolios and even that was short lived. We remain steadfast in our belief that diversification is the only free lunch available in the investment markets.
Dimensional Fund Advisors (DFA) has been creating some amazing content to help you understand current events and put them into perspective. First, on May 11th at 6 PM EST, we are very excited to announce that Apollo Lupescu, PhD, senior Vice-President with DFA, will be doing a live broadcast (via Zoom) for SWM clients and guests. Apollo will be covering a range of current economic topics—such as the national debt, inflation, cryptocurrency, and international diversification—in addition to responding to questions from participants. Please click here to register for this event. Also, please take a moment to check out these recent DFA articles:
- When Headlines Worry You, Bank on Investment Principles
- Market Returns Through A Century of Recessions
Next, it’s that time of the year again where we all try to wrap up our tax returns before the April 18th deadline. Please provide us with a copy of your entire federal and state tax return upon completion or remind your tax person to do so.
Now, in order to comply with the provisions of the Gramm-Leach-Bliley Act, SWM’s Privacy Statement is available here for your review. The Privacy Act requires that we deliver this to every client on an annual basis. Also, our ADV Part 2A & 2B has been updated recently. You can read the updated version by clicking on this link: ADV Part 2A & 2B.
We greatly appreciate the trust you have placed in us to help guide you forward. Feel free to reach out if you need anything.
*As measured by Vanguard Total Stock Market (VTWIX)
**As measured by Vanguard Total Bond Market (VBLTX)
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.