Elevation Wealth Management - 2nd Quarter In Review
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Elevation Wealth Management - 2nd Quarter In Review

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Independent, objective, and sound observations about the investment markets.

Independent, objective, and sound observations about the investment markets.

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Elevation Wealth Management - 2nd Quarter In Review Presentation Transcript

  • 1. Quarter In Review Barry Mendelson, CFP® President & Financial Advisor 1399 Y i V ll Rd S it 24 b @ l ti Second Quarter 2013 1399 Ygnacio Valley Rd, Suite 24 barry@elevationwm.com Walnut Creek, CA 94598 925-348-5852 www.elevationwm.com
  • 2. Disclosures Opinions expressed are those of Barry Mendelson, CFP® and Elevation Wealth Management. This presentation should not be construed as investment advice. The information contained in this presentation is compiled from sourcesp p believed to be reliable. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. The markets can remain irrational longer than you can remain solvent. 2
  • 3. Timeline of Events: Quarter in Review Second Quarter 2013Second Quarter 2013 On May 22 Fed Reserve Chairman Ben Bernanke 6% 8% European Central Bank cuts its key interest rate to 0.5%, down from its last change in July 2012. Protests erupt in Gezi Park, Turkey, concerning redevelopment plans for new mosque and h i t d l t t t i t On May 22, Fed Reserve Chairman Ben Bernanke mentions possibility of tapering bond purchases if economy continues to progress. 4% Fitch downgrades UK's credit rating from AAA to shopping center and later turn to anger against government policies. Fed Chairman Ben Bernanke announces possible scenario ending Fed’s unlimited bond-buying program beginning later this year and ending it entirely in mid-2014 2% credit rating from AAA to AA+, primarily due to weaker economic and fiscal outlook. entirely in mid 2014. 0% 87-year-old Giorgio Napolitano re-elected president of Italy following 2 months of political deadlock Citizens of Brazil protest against rising transportation costs and alleged -2% Gold posts its largest 1-day decline, falling more than $125 per ounce. of Italy following 2 months of political deadlock. Bank of Japan announces stimulus plan, injecting $1.4 trillion into economy in less than 2 years and driving inflation up to 2% transportation costs and alleged misuse of government spending. -4% 3/31 4/30 5/31 3 The graph illustrates the MSCI All Country World Index (net div.) daily returns over the quarter. Source: MSCI data copyright MSCI 2013, all rights reserved. The events highlighted are not intended to explain market movements. The index is not available for direct investment. Past performance is not a guarantee of future results. 2 years and driving inflation up to 2%. 6/30
  • 4. Market Returns U.S. and International Market Indexes April 1, 2013 through June 30, 2013 Global 1-5 Year Bonds Emerging Markets Stocks Int’l Small Stocks Int’l Value Stocks U.S. REIT Stocks U.S. Small Cap Stocks U.S. Value Stocks U.S. Large Cap Stocks U.S. Gov/ Credit 1-3 Year Bonds -0.3%-8.1%-3.5%-1.3%-1.3%+3.1%+3.2%+2.9% -0.1% BONDSU.S. STOCKS INTERNATIONAL STOCKS ONE 20 6% 25 3% 24 2% 7 7% 17 4% 17 8% 2 9% 1 1% 0 9% ONE Year 20.6% 25.3% 24.2% 7.7% 17.4% 17.8% 2.9% 1.1% 0.9% FIVE Years 7.0% 6.7% 8.8% 7.0% -0.6% 2.1% -0.4% 2.8% 2.5% TEN 7 3% 7 8% 9 5% 10 7% 8 0% 10 3% 13 7% 3 1% 2 9% Source: Morningstar Direct 2013. Market segment (Index representation) as follows: U.S. Large Cap (S&P 500 Index); U.S. Small Company Stocks (Russell 2000 Index), U.S. Value Stocks (Russell 1000 Value Index). U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed (MSCI World Ex USA Index (net div.)), I t ti l S ll (MSCI W ld E USA S ll ( t di )) E i M k t (MSCI E i M k t I d ( t di )) Gl b l B d (Citi WGBI 1 5 Y Hd USD) US B d Annualized for 5 and 10 Year Periods Years 7.3% 7.8% 9.5% 10.7% 8.0% 10.3% 13.7% 3.1% 2.9% International Small (MSCI World Ex USA Small (net div.)), Emerging Markets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI 1-5 Yr Hdg USD), US Bonds (BofA ML Corp & Govt 1-3 Yr TR). Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.
  • 5. World Asset Classes Second Quarter 2013 Index Returns Th US k t l d it t E i k t t l d f d ll t l ith ti t i il d i Second Quarter 2013 Index Returns The US market led equity returns. Emerging markets strongly underperformed across all asset classes, with negative returns primarily driven by poor performance in May and June. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. M k t t (i d t ti ) f ll US L C (S&P 500 I d ) US S ll C (R ll 2000 I d ) US V l (R ll 1000 V l I d ) US R l E t t (D J US S l t REIT I d ) Gl b l R l 5 Market segment (index representation) as follows: US Large Cap (S&P 500 Index); US Small Cap (Russell 2000 Index); US Value (Russell 1000 Value Index); US Real Estate (Dow Jones US Select REIT Index); Global Real Estate (S&P Global ex US REIT Index); International Developed Large, Small, and Value (MSCI World ex USA, ex USA Small, and ex USA Value Indexes [net div.]); Emerging Markets Large, Small, and Value (MSCI Emerging Markets, Emerging Markets Small, and Emerging Markets Value Indexes); US Bond Market (Barclays US Aggregate Bond Index); and Treasury (One-Month US Treasury Bills). The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995–2013, all rights reserved. MSCI data copyright MSCI 2013, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by Dow Jones Indexes. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
  • 6. Diversified Portfolios Review Asset Class Qtr 1 Year 5 Year 10 Year 10 Year Volatility Growth of Wealth July 2003 – June 2013 100% Stocks 0.6% 19.0% 3.2% 7.7% 16.2% 75-25 0.4% 14.4% 3.9% 7.1% 11.8% 50-50 0.2% 9.8% 3.9% 6.0% 7.6% 25-75 0.0% 5.2% 3.4% 4.6% 3.7% 100% Bonds -0.2% 0.7% 2.4% 2.9% 1.3% Source: Morningstar Direct 2013. 5 and 10 year periods are annualized. Asset allocations and index portfolio returns are for illustrative purposes only and do not represent actual performance. Stocks represented by MSCI World IMI Index (net div.) and Bonds represented by 50% Citi World Government Bond Index 1-5 Yr Hedged and 50% Bank of America Merrill Lynch US Treasury/Agency 1-3 Yr. Globally diversified portfolios rebalanced annually. Hypothetical value of $1 and kept invested through June 31, 2013of America Merrill Lynch US Treasury/Agency 1 3 Yr. Globally diversified portfolios rebalanced annually. Hypothetical value of $1 and kept invested through June 31, 2013 from the respective dates. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 7. Taper • June 19: Fed announces they may Qstart to taper Quantitative Easing Bond Purchases • Reduction in future demand for bonds causes yields to rise • Fed is moving up date of ending stimulus programs because they are more confident economic growth isg sustainable
  • 8. Bonds May Not Always Be Safe • Bonds face a different set of risks, namely interest rate risk US Treasury Index Return May 1 – June 30, 2013 -0.2% -1.8% 0.0% -6.5% Return -10.5% 6 M th 1 3 Y 3 5 Y 10 15 Y 30 Y6 Month 1-3 Year 3-5 Year 10-15 Year 30 Year Maturity Source: Morningstar Direct. US Treasury Indexes in Bank of America Merrill Lynch Series. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal.
  • 9. All that Glitters is Not Gold Growth of a Dollar in Gold July 1 1973 – June 30 2013 Growth of a Dollar in Gold and S&P 500 July 1 1973 – June 30 2013July 1, 1973 – June 30, 2013July 1, 1973 – June 30, 2013 S&P 500 GoldGo d Source: Morningstar Direct. Market segment (Index representation) as follows: Stocks (S&P 500 Index); Gold (London Fix Gold PM PR). Hypothetical value of $1 invested on July 1, 1973 and kept invested through June 31, 2013. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 10. Gold Over the Very Long Term January 1802 – December 2012 $1,000,000 $100,000 STOCKS $706,199 Stocks: 6.6% Real Bonds: 3.6% Real $10,000 $1 000 BONDS $1,632 Gold: 0.7% Real $1,000 $100 BONDS $1 $10 GOLD $4.50 December 2012 $0.10 January 1802 Source: Siegel, Jeremy, Future for Investors (2005), With Updates to 2012. Data is from Jan. 1, 1802 – Dec. 31, 2012. Hypothetical value of $1 invested on January 1, 1802 and kept invested through December 31, 2012. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 11. Commodities Second Quarter 2013 Index ReturnsSecond Quarter 2013 Index Returns C diti ti d t d li th DJ UBS Individual Commodity (% Returns) Commodities continued to decline, as the DJ-UBS Commodity Index gave up a further 9.5% during the quarter. Precious metals bore the brunt of the market decline. Global economic uncertainty abated somewhat and the -1 99 -1.69 5.09 8.55 Live Cattle WTI Crude Oil Soybean Lean Hogs Individual Commodity (% Returns) Global economic uncertainty abated somewhat, and the perceived safe haven status of gold and silver was less attractive. The ease with which investors could sell these commodities via exchange-traded funds was a focus of investor attention. -6.25 -6.13 -5.49 -3.83 -1.99 Wheat Sugar Cotton Zinc Live Cattle Soft commodities, with the exception of lean hogs and soybeans, lost ground, and the energy complex traded down during the quarter as global economic activity appeared to wane. -9.18 -9.04 -9.01 -6.61 -6.26 Aluminum Soybean Oil Corn Brent Oil Heating Oil Asset Class Q2 1 Year 3 Years** 5 Years** 10 Years** Commodities -9.45 -8.01 -0.26 -11.61 2.39 Period Returns (%) * Annualized 18 12 -15.03 -13.92 -11.79 -11.06 Nickel Coffee Natural Gas Unleaded Gas Copper -31.57 -23.39 -18.12 Silver Gold Nickel Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. All index returns are net of withholding tax on dividends. Dow Jones-UBS Commodity Index Total Return data provided by Dow Jones ©. 11
  • 12. The Market’s Response to Crisis 84% p Performance of a 60% Stocks, 40% Bonds Strategy 59% Cumulative Total Return After 1 year After 3 years After 5 years 35% 42% 50% 48% 50% 20% 21% 1% 8% 13% 21% 12% -2% -4%-5% October 1987: Stock Market Crash August 1989: US Savings and Loan Crisis September 1998: Asian Contagion Russian Crisis Long-Term Capital March 2000: Dot-Com Crash September 2001: Terrorist Attack September 2008: Bankruptcy of Lehman Brothers g p Management Collapse Balanced Strategy: 7.5% each S&P 500 Index, CRSP 6-10 Index, US Small Value Index, US Large Value Index; 15% each International Value Index, International Small Index; 40% BofA Merrill Lynch One-Year US Treasury Note Index. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.12
  • 13. Even Good Years Have Periods of Panic and Doubt Average annual market decline is 12% per calendar year 8% -17% -8% -11% Source: Morningstar Direct 2013. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 14. Reality: There Will Always Be Reasons to Panic and Feary y 1995 1997 19981987+5% +38% +29%+33% Source: Morningstar Direct. Market segment (Index representation) as follows: Stocks (S&P 500 Index). Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 15. There is No Modern Day Nostradamus S&P 500 Performance Jan 1, 2009 – Jun 30, 2013 Oct 11, 2010 John Hussman says Oct 6, 2009 Joseph Stiglitz y the market is "Overvalued, overbought, overbullish” says the markets have been irrationally exuberant Aug 2012 Mar 12, 2009 Nouriel Roubini predicts new lows in next Marc Faber warns of S&P 500 bear market after 2012 Dec, 2011 Richard 18 months presidential elections Oct 27, 2009 Bill Gross says the rally Richard Russell says to 'Get out of stocks' says the rally is at its pinnacle Source: Morningstar Direct 2013. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal.
  • 16. Poor Track Record of Most Active Managers Percent of Active Managers failing to beat their respective Index 2008 - 2012 Source: Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA), year end 2012. Index used for comparison: US Large Cap — S&P 500 Index; US Mid Cap — S&P MidCap 400 Index; US Small Cap — S&P SmallCap 600 Index; Global Funds — S&P Global 1200 Index; International — S&P 700 Index; Emerging Markets — S&P/IFCI Composite; Short-Term Inv. Grade Fixed Income — Barclays 1-3 Year Government/Credit Index. Outperformance is based upon equal weight fund counts. For illustrative purposes only. Index returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. Past performance is not an indication of future results.
  • 17. What have we learned?What have we learned? U d d i i k i f li Understand interest rate risk in your portfolio.  Realize there are no silver bullets to meeting financial goals.  Accept there will be up and down markets.  Recognize even good years will test willpower.  Invest in markets, not “gurus.”  Seek professional guidance if you do not have the discipline,p g y p expertise, time, or interest to do it yourself.
  • 18. Standardized Performance Data and Disclosures Average Annual Total Returns (%) 3 Mo 1 Yr 5 Yr 10 Yr Since Inception S&P 500 TR 2.91 20.60 7.01 7.30 9.95 Jan-26 Russell 1000 Value TR USD 3.20 25.32 6.67 7.79 12.25 Dec-78 Russell 2000 TR USD 3.08 24.21 8.77 9.53 11.68 Dec-78 DJ US Select REIT TR USD -1.29 7.69 6.97 10.68 9.22 Dec-86 MSCI World Ex USA Value NR USD -1.26 17.39 -0.61 7.97 11.64 Dec-74 MSCI World Ex USA Small Cap NR USD -3.49 17.82 2.06 10.25 8.17 Dec-00 MSCI EM NR USD -8.08 2.87 -0.43 13.66 10.74 Dec-98 Citi WGBI 1-5 Yr Hdg USD -0.33 1.10 2.84 3.14 5.99 Jan-85 BofAML US Corp&Govt 1-3 Yr TR USD -0.14 0.86 2.46 2.91 5.47 Jun-86 Data as of 6/30/13 Source: Morningstar Direct 2013. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting.
  • 19. Appendix and additional data points on the following slides…g
  • 20. US Stocks R k d R t f th Q t (%) US Stocks Second Quarter 2013 Index Returns All j US t l ith th ti f REIT 3 08 3.20 3.74 S ll C Large Cap Value Small Cap Growth Ranked Returns for the Quarter (%)All major US asset classes, with the exception of REITs, maintained positive performance in the 2nd quarter, with the broad market returning 2.69%. Asset class returns ranged from 3.74% for small growth stocks to 2.06% for large growth stocks. 2.47 2.69 2.91 3.08 Small Cap Value Marketwide Large Cap Small Cap Across the size spectrum, returns were mixed. Small growth outperformed large growth, and large value outperformed small value. 2.06Large Cap Growth P i d R t (%) * A li dW ld M k t C it li ti US Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Marketwide 21.46 18.63 7.25 7.81 Large Cap 20.60 18.45 7.01 7.30 Large Cap Value 25.32 18.51 6.67 7.7949% World Market Capitalization—US Large Cap Growth 17.07 18.68 7.47 7.40 Small Cap 24.21 18.67 8.77 9.53 Small Cap Value 24.76 17.33 8.59 9.30 Small Cap Growth 23.67 19.97 8.88 9.63 US Market $17.7 trillion 20 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap: Russell 3000 Index is used as the proxy for the US market. Russell data copyright © Russell Investment Group 1995–2013, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group.
  • 21. International Developed StocksInternational Developed Stocks Second Quarter 2013 Index Returns I t ti l d l d k t t d ti t R k d R t f th Q t (%)International developed markets posted negative returns for the quarter. The strong size premium present in the first quarter was reversed in the second. Consistent with the first quarter, the US dollar appreciated relative to most major foreign developed 1.12 1 61 -1.26 Value Ranked Returns for the Quarter (%) US Currency Local Currency appreciated relative to most major foreign developed currencies, with the exception of the euro. Across the size and style spectrum, large beat small and value outperformed growth. 0.33 0.71 -3.49 -1.95 -1.61 S ll C Growth Large Cap P i d R t (%) * A li d -0.73 Small Cap W ld M k t C it li ti I t ti l D l d Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Large Cap 17.07 9.43 -0.84 7.86 Small Cap 17.82 10.80 2.06 10.25 Value 17.39 8.92 -0.61 7.97 40% World Market Capitalization—International Developed Growth 16.73 9.88 -1.10 7.67 40%International Developed Market $14.2 trillion Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth). All index returns are net of withholding tax on dividends. World Market Cap: Non-US developed market proxies are the respective developed country portions of the MSCI All Country World IMI ex USA Index. Proxies for the UK, Canada, and Australia are the relevant subsets of the developed market proxy. MSCI data copyright MSCI 2013, all rights reserved. 21
  • 22. Emerging Markets StocksEmerging Markets Stocks Second Quarter 2013 Index Returns E i k t ti d t t ti t R k d R t f th Q t (%)Emerging markets continued to post negative returns. There was a marginal size premium, with small caps outperforming large caps by 61 basis points. Across the style spectrum, growth outperformed value by 3.41%. The US dollar appreciated vs most emerging -2.71 7 47 -6.41 Growth Ranked Returns for the Quarter (%) US Currency Local Currency The US dollar appreciated vs. most emerging markets currencies. -4.42 -4.39 -9.82 -8.08 -7.47 V l Large Cap Small Cap -6.21 Value Period Returns (%) * AnnualizedW ld M k t C it li ti E i M k t Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Large Cap 2.87 3.38 -0.43 13.66 Small Cap 9.86 3.72 4.55 14.74 Value -1.21 1.72 -0.46 14.66 11%Emerging World Market Capitalization—Emerging Markets Growth 6.89 5.00 -0.47 12.63Markets $4.0 trillion 22 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI Emerging Markets Index), Small Cap (MSCI Emerging Markets Small Cap Index), Value (MSCI Emerging Markets Value Index), and Growth (MSCI Emerging Markets Growth Index). All index returns are net of withholding tax on dividends. World Market Cap: Emerging markets proxies are the respective emerging country portions of the MSCI All Country World IMI ex USA Index. MSCI data copyright MSCI 2013, all rights reserved.
  • 23. Select Country PerformanceSelect Country Performance The majority of developed and emerging markets countries posted negative returns in the second quarter. Japan continued to outperform most developed market countries The best-performing emerging markets country was Hungary which exited its recession in the first quarter Second Quarter 2013 Index Returns most developed market countries. The best-performing emerging markets country was Hungary, which exited its recession in the first quarter. Developed Markets (% Returns) Emerging Markets (% Returns) 0 82 2.66 2.69 2.71 2.83 4.40 Ital France USA Germany Netherlands Japan -4.66 -3.16 1.59 6.24 13.18 Poland Morocco Taiwan Malaysia Hungary -2.16 -0.68 -0.64 -0.29 0.50 0.82 UK Portugal Spain Switzerland Finland Italy -8.36 -7.42 -6.83 -6.76 -5.60 Czech Republic South Africa Indonesia China India -4.61 -4.45 -4.45 -3.92 -3.63 -3.05 Hong Kong Belgium Israel Denmark Ireland Austria -9.97 -9.73 -8.82 -8.69 -8.58 Korea Egypt Philippines Russia Thailand p -10.38 -9.96 -7.48 -6.33 -6.10 -5.78 New Zealand Greece Canada Singapore Sweden Norway -17.32 -15.46 -14.87 -13.25 -11.18 Brazil Turkey Chile Colombia Mexico 9 Country performance based on respective indices in the MSCI World ex US Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets Index. All returns in USD and net of withholding tax on dividends. MSCI data copyright MSCI 2013, all rights reserved. Russell data copyright © Russell Investment Group 1995–2013, all rights reserved. -13.93Australia -27.46Peru
  • 24. Real Estate Investment Trusts (REITs)Real Estate Investment Trusts (REITs) Second Quarter 2013 Index Returns REIT h d ti f d i th t ith R k d R t f th Q t (%)REITs had negative performance during the quarter, with International REITs strongly underperforming US REITs by approximately 7%. International REITs experienced their first negative quarter for the first time in the last year and a half -1.29US REITs Ranked Returns for the Quarter (%) quarter for the first time in the last year and a half. -8.30Global REITs (ex US) P i d R t (%) * A li dT t l V l f REIT St k Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** US REITs 7.69 18.08 6.97 10.68 Global REITs (ex US) 14.28 15.47 2.20 7.91 59%41%W ld US Total Value of REIT Stocks 59%US $443 billion 84 REITs World ex US $312 billion 172 REITs (19 other countries) Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Dow Jones US Select REIT Index data provided by Dow Jones ©. S&P Global ex US REIT Index data provided by Standard and Poor’s © 2013. 24
  • 25. Fixed Income B d Yi ld Diff t I Fixed Income Second Quarter 2013 Index Returns B d i t ff d d i th 2 48 4.63 2 62 3.53 Bond Yields across Different IssuersBond investors suffered during the quarter, as the US Federal Reserve offered indications that the market interpreted as a nearer-than- expected cessation of quantitative i Yi ld d i th US 6/30/13 3/31/13 6/30/12 2.48 2.62 10-Year US State and AAA-AA A-BBB easing. Yields soared in the US, in particular for maturities beyond 3 years. The bellwether 10-year lost significant ground, moving from a yield of 1.85% on March 31, 2013 to 2 49% at quarter end The Treasury Local Municipals Corporates Corporates Period Returns (%) Asset Class 1 Year 3 Years** 5 Years** 10 Years** * Annualized 2013, to 2.49% at quarter end. The majority of the move came in the second half of the quarter. The absence of meaningful levels of inflation in the US Asset Class 1 Year 3 Years 5 Years 10 Years One-Month US Treasury Bills (SBBI) 0.06 0.06 0.19 1.59 Bank of America Merrill Lynch Three-Month T-Bills 0.11 0.11 0.29 1.72 Bank of America Merrill Lynch One-Year US Treasury Note 0.31 0.41 1.06 2.11 Citigroup World Government Bond 1-5 Years (hedged) 1.10 1.53 2.84 3.14 US L T G t B d (SBBI) 8 86 5 74 7 34 5 97 levels of inflation in the US paced negative returns for TIPS investors. Real rates turned positive in longer-dated maturities. Yield-seeking investors came US Long-Term Government Bonds (SBBI) -8.86 5.74 7.34 5.97 Barclays Capital Corporate High Yield 9.49 10.74 10.94 8.91 Barclays Capital Municipal Bonds 0.24 4.46 5.33 4.42 Barclays Capital US TIPS Index -4.78 4.63 4.41 5.20 under pressure as credit spreads widened in the difficult environment. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Yield curve data from Federal Reserve. State and local bonds are from the Bond Buyer Index, general obligation, 20 years to maturity, mixed quality. AAA-AA Corporates represent the Bank of America Merrill Lynch US Corporates, AA-AAA rated. A-BBB Corporates represent the Bank of America Merrill Lynch US Corporates, BBB-A rated. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Citigroup bond indices copyright 2013 by Citigroup. The Merrill Lynch Indices are used with permission; copyright 2013 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. 25
  • 26. The Art of Letting GoThe Art of Letting Go Second Quarter 2013 In many areas of life, intense activity and constant monitoring of results represent the path to success. In investment, that approach Financial science and experience show that our investment efforts are best directed toward areas where we can make a difference and away from things we can’t control. So we can’t control movements in the market. What’s more, we are programmed to focus on idiosyncratic risks—like glamor stocks—instead of systematic risks, such as the degree to which our portfolios are tilted toward the broad dimensions of risk and return. gets turned on its head. The Chinese philosophy of Taoism has a word for it: “wuwei.” It literally means “non-doing.” In other words, the busier we are with our long-term i t t d th ti k th l So we can t control movements in the market. We can’t control news. We have no say over the headlines that threaten to distract us. But each of us can control how much risk we take. We can diversify those risks across different dimensions of risk and return. The consequence is that most individual investors earn poor long-term returns. This is borne out each year in the analysis of investor behavior by research group Dalbarinvestments and the more we tinker, the less likely we are to get good results. That doesn’t mean, by the way, that we should do nothing whatsoever. But it does mean that the culture of “busyness” and chasing returns assets, companies, sectors, and countries. We do have a say in the fees we pay. We can influence transaction costs. And we can exercise discipline when our emotional impulses threaten to blow us off-course. investor behavior by research group Dalbar. In 20 years, up to 2012, for instance, Dalbar found the average US mutual fund investor underperformed the S&P 500 by nearly 4 percentage points a year.1 y g promoted by much of the financial services industry and media can work against our interests. Investment is one area where constant activity and a sense of control are not well correlated. L k t th h i f it i These principles are so hard for people to absorb because the perception of investment promoted through financial media is geared around the short term, the recent past, the ephemeral, the narrowly focused and the quick fix. This documented difference between simple index returns and what investors receive is often due to individual behavior—in being insufficiently diversified, in chasing returns, in making bad timing decisions, and in trying to Look at the person who is forever monitoring his portfolio, who fitfully watches business TV, or who sits up at night looking for stock tips on social media. y q We are told that if we put in more effort on the external factors, that if we pay closer attention to the day-to-day noise, we will get better results. “beat” the market. This type of individual behavior reinforces the ancient Chinese wisdom: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyondgo. But when you try and try, the world is beyond the winning.” 26 Diversification does not protect against loss in declining markets. It is not possible to invest in an index. 1. “Quantitative Analysis of Investor Behavior,” Dalbar, 2013. Adapted from “The Art of Letting Go” by Jim Parker, Outside the Flags column on Dimensional’s website, May 2013. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.