During the last quarter, the best performing asset classes were U.S. large stocks, international small stocks, and emerging markets stocks. The following chart shows the 3-month, 10-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 September 30, 2020
|DFA Fund / Index||3 Month Return||10 Year Return*||20 Year Return*|
|S&P 500 Index||8.93||13.74||6.42|
|DFA U.S. Large Value||5.20||10.09||7.52|
|DFA U.S. Small||3.94||9.28||7.53|
|DFA U.S. Small Value||3.37||6.80||7.90|
|DFA Real Estate (REITs)||0.68||8.94||9.54|
|DFA Int’l Large||5.23||4.50||3.71|
|DFA Int’l Large Value||2.00||1.56||4.48|
|DFA International Small||9.68||6.18||8.04|
|DFA Int’l Small Value||6.30||4.83||8.38|
|DFA Emerging Markets Core||8.61||2.24||7.83|
|DFA 5-Year Global Bonds||0.18||2.21||3.61|
|DFA Inflation Protected Bonds||3.30||3.68||N/A|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
The stock market continued its recovery in the third quarter of 2020. International small, emerging markets and US large stocks led the way as each earned approximately 9% for the quarter. The global stock market as a whole earned approximately 8%. The popular FAANG stocks, made up of Facebook, Amazon, Apple, Netflix and Google continued to lead the Nasdaq 100 index to another excellent quarter of performance. Although, cracks are starting to show as the Nasdaq lost a quick 13% between September 2nd and September 23rd on fears of valuations that are overextended. Make sure to read my new blog post that goes into more detail on the why investors might think twice before chasing the biggest or best performing stocks.
We have continued to rebalance client portfolios as needed, with some clients even becoming overweight in stocks relative to our target levels. Fortunately, for those with cash on the sidelines, there still appears to be attractive valuations for small stocks, value stocks and REITs.
With the back-to-school season in full effect the stock market is diligently watching to see how the COVID-19 numbers change. Members of both parties remain locked in negotiations on a second round of stimulus that could include another round of payments to individuals and extended Federal unemployment benefits. The stock market has eagerly awaited a compromise on this front. Fortunately, several vaccines are now in the late stages of trials and rapid testing for COVID-19 is becoming widely available.
The one topic we continue to hear questions on is how the upcoming election will affect markets and our strategy. The unexciting answer is this: it likely won’t affect our portfolios in any noticeable way. Research from Vanguard concluded that there is no statistical difference in performance for a 60% stock, 40% bond portfolio in election years versus non-election years. In addition, DFA published a short article with similar results to Vanguard. This leads us to believe that no major changes in strategy are needed before or after the election, no matter who the winner turns out to be.
On our blog, we just posted the DFA video, “Value vs. Growth: Past, Present, and Future,” where Dimensional’s Mark Gochnour (Head of Global Client Services Group) and Jake DeKinder (Head of Client Communications) offer a perspective on the 2020 financial markets and give historical context to the recent performance of value and growth stocks, as well as other segments. They also discuss how past economic events have impacted market returns and highlight the importance of thinking long term. They answer so many of the questions that we’re hearing lately, so I hope you will take the time to watch it.
Finally, we have changed the Activity Summary section in your Quarterly Report to separate out contributions, distributions, and merges into or out of your portfolio. Until this quarter, we had all of these categories consolidated into one line that we called “Net Contributions.” However, we have decided to separate each of these categories to make it easier to determine your contributions (deposits of $ into your portfolio) versus your distributions (withdrawals of $ out of your portfolio). The “Merge In/Out” category can be difficult to understand, as it contains a lot of miscellaneous situations where assets move into or out of your portfolio (and it can be a positive or negative number). This category includes shares of securities that are “merged” into the portfolio (after the Beginning Market Value) from a 401k rollover or a related account (like from a deceased spouse’s account), a movement of assets out of your portfolio, or the transfer of shares of appreciated securities to a charity (the most common reason this number is negative). There may also be a small positive or negative $ amount in the “Merge In/Out” category as a result of the migration from TD Ameritrade to Fidelity.
If you have any questions about your quarterly report, please do not hesitate to reach out via email or by scheduling a short call with me. Thanks again for your business and your trust.
Enjoy your fall and stay safe!
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.