Benchmark Returns for the Period Ended June 2018
| Annualized | ||||
|---|---|---|---|---|
| Quarter | 1 Year | 5 Year | 10 Year | |
| US Treasury Bills (one month) | 0.42% | 1.27% | 0.36% | 0.27% |
| Barclays Capital US Gov’t/Credit Inter Bond | 0.01% | -0.58% | 1.60% | 3.08% |
| Standard & Poor’s 500 | 3.43% | 14.37% | 13.42% | 10.17% |
| Russell 1000 Value (large cap value) | 1.18% | 6.77% | 10.34% | 8.49% |
| Russell 2000 (small cap) | 7.75% | 17.57% | 12.46% | 10.60% |
| MSCI Europe, Australia and Far East (EAFE) | -1.24% | 6.84% | 6.44% | 2.84% |
| MSCI Emerging Markets Index | -7.96% | 8.20% | 5.01% | 2.26% |
| Wilshire REIT | 9.73% | 3.88% | 8.42% | 7.81% |
| Source for returns: Morningstar TM as of 6/30/2018. | ||||
Quarterly Commentary
US markets had a positive second quarter, with the S&P 500 returning 3.43% and the Russell 2000 returning 7.75%. International developed markets declined 1.24% and Emerging Markets declined 7.96%. Real Estate Investment Trusts (REITs) were the best performing asset class during the quarter, with a return of 9.73%.
In June, the Fed increased its benchmark interest rate another 25 basis points to a target range of 1.75%-2.00%. This was the seventh rate hike since December 2015. The Fed also signaled that it expects to raise rates at least once more in 2018. Strong employment, sustained economic expansion, and inflation – all near their target ranges – are driving rates closer to the long-term average. These rate increases have led to substantially higher yields in money market funds and short-term bonds. Long-term bond yields have increased, but not to the same extent. Long-term bonds are less impacted by current rate policy and are more dependent on long-term inflation and economic expectations, which changed little during the quarter.
Heightened trade policy discussions influenced markets both domestically and abroad. Generally, any impediment to free trade has historically had a negative impact on global economic activity. As illustrated in the quarterly returns, it appears that investors anticipate smaller domestic companies (Russell 2000) will benefit from the current trade discussions while less-developed international countries and the companies based there (MSCI Emerging Markets Index) may have some difficulty. While the outcome of the current discussions is unknown, it is worth noting that protectionist trade policies have been on the rise globally since the financial crisis in 2008-2009.
The occurrence of these discussions should not be alarming, as various risk factors appear periodically. Investing is not a risk-free endeavor, hence the return that is earned over time. What we can say with some certainty is the following:
- Financial markets will remain unpredictable.
- Unpredictability will lead to market swings that will make you slightly uncomfortable (refer to RCG’s recent article on volatility).
- Some market segments will outperform while others underperform.
- The long-term benefit of global diversification will persist.
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.
