Benchmark Returns for the Period Ended March 2020

Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.37% 1.92% 1.06% 0.56%
Barclays Capital US Gov’t/Credit Inter Bond 2.40% 6.88% 2.76% 3.14%
Standard & Poor’s 500 -19.60% -6.98% 6.73% 10.53%
Russell 1000 Value (large cap value) -26.73% -17.17% 1.90% 7.67%
Russell 2000 (small cap) -30.61% -23.99% -0.25% 6.90%
Morgan Stanley Europe, Australasia and Far East (EAFE) -22.83% -14.38% -0.62% 2.72%
MSCI Emerging Markets Index -23.60% -17.69% -0.37% 0.68%
Wilshire REIT -25.63% -19.38% -0.19% 7.67%

Quarterly Commentary

To say that equity markets had a challenging start to 2020 would be an understatement. The record highs reached in mid-February by the S&P 500 seem like a distant memory after the 30% drop in March – the quickest decline from a new high ever recorded.

Once the dust settled for the quarter, the S&P 500 returned ‑19.60% and earned the distinction of being one of the “least bad” equity markets globally. Domestic small company stocks (per the Russell 2000 Index) were one of the worst performing sectors, with a return of ‑30.61% for the quarter. International equities were not spared, as international developed markets (per the MSCI EAFE Index) returned ‑24.10% and emerging markets (per the MSCI EM Index) returned ‑23.60%.

Fixed income returns were mixed for the quarter. High-quality fixed income returned 1.70% (per the FTSE World Government Bond Index 1-3 Years) and low-quality fixed income returned ‑12.68% (per the Bloomberg Barclays US Corporate High Yield Index). Low-quality fixed income tends to perform negatively during economic contractions, which is the primary reason our fixed income portfolios only invest in high-quality bonds.

The volatility in the first quarter was unquestionably due to the Coronavirus and the terrible toll the sickness is having on human life. During a pandemic without a cure or vaccine, the most prudent course of action for society is to reduce social exposure and thus limit the contagion. This, of course, disrupts both the personal lives of billions around the globe and the economies they interact with.

Unlike the financial crisis in 2008, policymakers have been quick to respond to the economic impact of COVID-19. The Federal Reserve lowered its interest rate target to 0% and provided much needed liquidity to fixed income markets. In late March, Congress passed the $2 trillion CARES act. While the need for additional economic support remains to be seen, the prompt action by both monetary and fiscal policy makers stands in contrast to the lengthier response times observed during previous economic declines.

While we hope this provides context as to why the market decline occurred, we know it will not make reviewing your quarterly report any easier, nor will it make daily life easier for you over the next few months. We have not lost faith in human ingenuity nor the ability of humanity to overcome this current crisis. Vaccines will be developed, improved treatment methods will be found, and we will emerge with a better understanding of how viruses like this are transmitted. We will get through this and markets will recover.

If you have questions about your quarterly report or how it will impact your long-term plan, please call. We are all in this together and RCG is here to serve you during these difficult times.

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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.