During the second quarter of 2023, the best performing asset classes were U.S. large stocks, small stocks, and small value stocks. The following chart shows the 3-month, 1-year, and 3-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending June 30, 2023
|DFA Fund / Index||3 Month Return||1 Year Return||3 Year Return*|
|S&P 500 Index||8.74||19.59||14.60|
|DFA World Core Equity||5.23||16.26||13.19|
|DFA U.S. Large Value||3.18||11.54||15.97|
|DFA U.S. Small||4.30||14.64||17.57|
|DFA U.S. Small Value||4.51||15.43||24.56|
|DFA Real Estate (REITs)||1.09||-4.44||6.12|
|DFA Int’l Large||3.00||17.21||9.99|
|DFA Int’l Large Value||3.99||18.10||16.37|
|DFA International Small||0.48||12.56||9.41|
|DFA Int’l Small Value||0.87||15.25||12.69|
|DFA Emerging Markets Core||2.14||4.68||6.17|
|DFA 5-Year Global Bonds||0.70||1.43||-1.78|
|DFA Inflation Protected Bonds||-1.71||-1.20||-0.25|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
This quarter saw the global stock and bond markets trading sideways during April and May, as we all waited to see how the debt ceiling debacle would play out. Fortunately, a deal was struck at the eleventh hour, which is typical when compared to the way past debt ceiling negotiations were resolved.
The agreement ultimately resulted in the debt ceiling being suspended until January 2025 and stocks rallied strongly in June with one less thing to worry about. The global stock market* finished the quarter up 5.23% and we were ultimately rewarded for being disciplined in maintaining our stock holdings despite many market pundits insisting investors sell out.
Optimism about the effect on productivity that artificial intelligence, or A.I., could have on the economy at large powered a handful of large tech companies to lead the market upward, specifically NVIDIA, which has gained 186% since the beginning of the year.
This leads us to a timeless investment lesson—when looking for a needle in a haystack, if you simply buy the entire haystack you are certain to find the needle. Diversification ensured that our portfolios owned the “winners” that drove the market up, whereas had we invested in a narrower way, as many stock pickers do, we would have risked missing out on most of the market’s gains this year.
The Federal Reserve raised interest rates 0.25% in May but held interest rates steady at the June meeting. Despite the June pause, the bond market** declined -.90% for the quarter as investors digested statements from the Federal Reserve indicating that two more interest rate increases may be coming before year end. But with inflation on the downturn, it is not certain they will actually need to follow through with that outline.
Thank you for your continued trust and confidence. As always, please don’t hesitate to call if you need to discuss something—that’s what we are here for.
Enjoy your summer!
*As measured by DFA World Core Equity Portfolio (DREIX)
**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.