This document provides a market commentary and overview of key steps to financial success. It discusses that asset allocation, investment selection, and rebalancing are important for financial success. It also notes that diversification is important because leaders in different asset classes rotate over time. While diversification struggled in 2014, diversification remains important because different asset classes outperform in different years.
4. Investor Returns vs. Benchmarks over 20 Years
Source: "Quantitative Analysis of Investor Behavior, 2014,” DALBAR, Inc. Annualized return for the
past 20 years ending 12/31/2013. The Equity benchmark is represented by the S&P 500. The Fixed
Income Benchmark is represented by the Barclays Aggregate Bond Index. Returns do not subtract
commissions or fees. This study was conducted by an independent third party, DALBAR, Inc. A
research firm specializing in financial services, DALBAR is not associated with Edward Jones.
Individuals cannot invest directly in any index. Past performance is no guarantee of future results.
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6. Slide 6
Market Summary
Diversification didn't work as advertised during 2014
– Large Cap U.S. Stocks outperformed most other asset classes, with
the exception of Real Estate (REITs)
– International stocks dramatically underperformed
– Small Cap and Mid Cap U.S. stocks also underperformed
– Commodities and Emerging Markets both had negative returns
– 2014 felt a lot like 2011 all over again
– All Asset Allocation mutual funds struggled against this performance
headwind
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7. Diversification does not guarantee a profit or protect against losses.
Diversified Portfolios Underperformed U.S.-centric
Source: Morningstar Direct, Edward Jones calculations. Past performance does not guarantee future results. An index is not managed and is unavailable for
direct investment. Performance does not include payment of any expenses, fees or sales charges, which would lower the performance results. Returns include
dividend reinvestments. The prices of small-cap stocks are generally more volatile than those of large company stocks. There are special risks inherent with
international investing, including currency fluctuations and political, social and economic risks. U.S. Large Cap stocks represented by the S&P 500. International
stocks are represented by the MSCI EAFE. The globally diversified moderate allocation comprises the following indexes and weights: S&P 500 (31%), Barclays
Aggregate Bond (25%), MSCI EAFE (21%), Russell Mid Cap (7%), Barclays Global Aggregate ex-USD (4%), Barclays High Yield 2% Issuer Cap (4%), Russell
2000 (4%), Barclays U.S. Treasury Bill 1-3 Month (2%), and MSCI ACWI Ex USA SMID (2%).
Less Diversified More Diversified
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8. Then Why Diversify? Because Leaders Rotate
Slide 8 EXP 30 APR 2015MKD-6687N-A
2010 2011 2012 2013 2014 Q4 2014 10 Yr. Return 10 Yr. Volatility
REITs
28.5%
REITs
8.7%
Emerging Mkts
18.2%
Small Cap Stocks
38.8%
REITs
30.4%
REITs
14.3%
Emerging Mkts
8.4%
REITs
25.9%
Small Cap Stocks
26.9%
U.S. Bonds
7.8%
REITs
17.8%
S&P 500
32.4%
S&P 500
13.7%
Small Cap Stocks
9.7%
REITs
8.3%
Emerging Mkts
23.7%
Emerging Mkts
18.9%
High Yield
5.0%
Intl. Stocks
17.3%
Intl. Stocks
22.8%
Balanced Toward
Growth
7.9%
S&P 500
4.9%
Small Cap Stocks
7.8%
Small Cap Stocks
19.8%
Commodities
16.8%
S&P 500
2.1%
Small Cap Stocks
16.4%
Balanced Toward
Growth
17.9%
U.S. Bonds
6.0%
Balanced Toward
Growth
2.5%
High Yield
7.7%
Intl. Stocks
18.2%
S&P 500
15.1%
Balanced Toward
Growth
2.0%
S&P 500
16.0%
High Yield
7.4%
Small Cap Stocks
4.9%
U.S. Bonds
1.8%
S&P 500
7.7%
Commodities
18.2%
High Yield
14.9%
Cash
0.07%
High Yield
15.8%
REITs
2.5%
High Yield
2.5%
Cash
0.0%
Balanced Toward
Growth
6.4%
S&P 500
14.7%
Balanced Toward
Growth
11.4%
Small Cap Stocks
-4.2%
Balanced Toward
Growth
12.2%
Cash
0.0%
Cash
0.0%
High Yield
-1.0%
U.S. Bonds
4.7%
High Yield
10.3%
Intl. Stocks
7.8%
Intl. Stocks
-12.1%
U.S. Bonds
4.2%
U.S. Bonds
-2.0%
Emerging Mkts
-2.2%
Intl. Stocks
-3.6%
Intl. Stocks
4.4%
Balanced Toward
Growth
10.0%
U.S. Bonds
6.5%
Commodities
-13.3%
Cash
0.1%
Emerging Mkts
-2.6%
Intl. Stocks
-4.9%
Emerging Mkts
-4.5%
Cash
1.5%
U.S. Bonds
3.2%
Cash
0.1%
Emerging Mkts
-18.4%
Commodities
-1.1%
Commodities
-9.5%
Commodities
-17.0%
Commodities
-12.1%
Commodities
-1.9%
Cash
0.6%
9. Then Why Diversify? Because Leaders Rotate
Slide 9 EXP 30 APR 2015MKD-6687N-A
2002 2003 2004 2005 2006 2007 2008 2009
Commodities
25.9%
Emerging Mkts
55.8%
REITs
31.5%
Emerging Mkts
34.0%
REITs
35.9%
Emerging Mkts
39.4%
U.S. Bonds
5.2%
Emerging Mkts
78.5%
U.S. Bonds
10.3%
Small Cap Stocks
47.3%
Emerging Mkts
25.6%
Commodities
21.4%
Emerging Mkts
32.2%
Commodities
16.2%
Cash
1.8%
High Yield
58.8%
REITs
3.6%
Intl. Stocks
38.6%
Intl. Stocks
20.3%
Intl. Stocks
13.5%
Intl. Stocks
26.3%
Intl. Stocks
11.2%
Balanced Toward
Growth
-25.2%
Intl. Stocks
31.8%
Cash
1.7%
REITs
36.7%
Small Cap Stocks
18.4%
REITs
12.1%
Small Cap Stocks
18.5%
Balanced Toward
Growth
7.1%
High Yield
-25.9%
REITs
28.6%
High Yield
-0.2%
High Yield
28.8%
High Yield
11.1%
Balanced Toward
Growth
5.5%
S&P 500
15.8%
U.S. Bonds
7.0%
Small Cap Stocks
-33.8%
Small Cap Stocks
27.2%
Emerging Mkts
-6.2%
S&P 500
28.7%
S&P 500
10.9%
S&P 500
4.9%
Balanced Toward
Growth
13.3%
S&P 500
5.5%
Commodities
-35.7%
S&P 500
26.5%
Balanced Toward
Growth
-10.3%
Commodities
23.9%
Balanced Toward
Growth
10.1%
Small Cap Stocks
4.6%
High Yield
10.8%
Cash
4.8%
S&P 500
-37.0%
Balanced Toward
Growth
20.3%
Intl. Stocks
-15.9%
Balanced Toward
Growth
21.2%
Commodities
9.2%
Cash
3.0%
Cash
4.8%
High Yield
2.3%
REITs
-38.0%
Commodities
18.9%
Small Cap Stocks
-20.5%
U.S. Bonds
4.1%
U.S. Bonds
4.3%
High Yield
2.8%
U.S. Bonds
4.3%
Small Cap Stocks
-1.6%
Intl. Stocks
-43.1%
U.S. Bonds
5.9%
S&P 500
-22.1%
Cash
1.0%
Cash
1.2%
U.S. Bonds
2.4%
Commodities
2.1%
REITs
-16.8%
Emerging Mkts
-53.3%
Cash
0.2%
10. Then Why Diversify? Because Leaders Rotate
Returns and Volatility of Key Indices through Q4 2014 Ranked in Order of Performance (Best to Worst)
Slide 10
The S&P 500 Stocks are represented by the S&P 500 Index, which is widely regarded
as the best single gauge of the performance of the large cap U.S. equity universe.
U.S. Bonds are represented by the Barclays Aggregate Bond Index, which measures
the performance of U.S. investment-grade, fixed-rate taxable bonds.
Small Cap Stocks are represented by the Russell 2000 Index, which measures the
performance of the small-cap segment of the U.S. equity universe.
High Yield is represented by the Barclays U.S. High Yield 2% Issuer Cap Index, which
measures the performance of the U.S. high yield bond market.
International Stocks are represented by the MSCI EAFE Index, which measures the
performance of developed international equity markets excluding the U.S. and Canada
Commodities are represented by the Dow Jones-UBS Commodities Index, which
measures the performance of commodities traded on U.S. exchanges.
Emerging Market Stocks are represented by the MSCI Emerging Markets Index, which
measures the performance of emerging international equity markets.
Cash is represented by the Barclays Capital 1-3 Month Treasury Bill Index (formerly
Lehman Brothers Short Treasury 1-3 Months Index), which is used as a general
measure for money market instruments
Balanced Toward Growth is represented by a 49% S&P 500, 16% MSCI EAFE, and
35% BarCap Aggregate Bond blended benchmark
REITs are represented by the MSCI U.S. Reit Index, which measures the performance
of U.S. equity Real Estate Investment Trusts (REITs).
Source: Morningstar Direct. Past performance does not guarantee future results. An index is not
managed and is unavailable for direct investment. Performance does not include payment of any
expenses, fees or sales charges, which would lower the performance results. Returns include
dividend reinvestment. The prices of small-cap stocks are generally more volatile than large
company stocks. There are special risks inherent in International investing, including currency
fluctuations and political, social and economic risks.
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11. S&P 500 delivered third year of double-digit gains
Slide 11
Market Summary
Source: Morningstar Direct, Edward Jones estimates.
Q4 2014
2014: Up 13.7%
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12. As the economic recovery continues to propel U.S. stocks.
Slide 12
Market Summary
Source: Morningstar Direct, Edward Jones estimates. EXP 30 APR 2015MKD-6687N-A
13. Diversification didn't work in 2014 as International stocks lagged…
Slide 13
Market Summary
Source: Morningstar Direct, Edward Jones estimates. EXP 30 APR 2015MKD-6687N-A
14. With International underperforming the U.S. by 19% in 2014…
Slide 14
Market Summary
Source: Morningstar Direct, Edward Jones estimates.
International Underperforming
International Outperforming
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15. And Small Cap underperforming Large by 9% in 2014.
EXP 30 APR 2015MKD-6687N-ASlide 15
Market Summary
Source: Morningstar Direct, Edward Jones estimates.
Small Cap Outperforming
Small Cap Underperforming
16. Slide 16
Economic and Market Summary
Performance Driver Detail Review for 2014
– Asset Allocation Effect: Negative
– Magnitude: Significant
– Driven primarily by weakness in small-cap, mid-cap, and international
stocks relative to strong performance of U.S. large-cap stocks
– Style Allocation Effect: Negative
– Magnitude: Moderate
– Driven by growth stocks outperforming value stocks globally
– Fund Selection Effect: Negative
– Magnitude: Varies by model
– Advisory Solutions Program List Investments typically performed well.
However, indexes and passive investment strategies outperformed most
active money managers in several key asset classes.
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17. Slide 17
Diversification does not guarantee a profit or protect against loss..
Diversification and Asset Allocation
Asset Classes
0%
U.S. large-cap
Stocks
49%
U.S. Bonds
35%
Int'l large-cap
Stocks
16%
Balanced toward Growth Simple
Allocation
U.S. large-cap
Stocks
27%
U.S. mid-cap
5%
U.S. small-cap
4%
Real Estate
3%
Natural
Resources
3%
Cash
2%
U.S.
Investment
Grade Bonds
25%
U.S. High
Yield
4%
Int'l Bonds
4%
Int'l large-cap
13%
Emerging
Markets
3%
Int'l large-cap
overweight
7%
Balanced toward Growth Granular
Allocation
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18. Slide 18
Diversification does not guarantee a profit or protect against loss..
Diversification and Asset Allocation
Asset Classes
0%
U.S. large-cap
Stocks
49%
U.S. Bonds
35%
Int'l large-cap
Stocks
16%
Balanced toward Growth Simple
Allocation
U.S. large-cap
Stocks
27%
U.S. mid-cap
5%
U.S. small-cap
4%
Real Estate
3%
Natural
Resources
3%
Cash
2%
U.S.
Investment
Grade Bonds
25%
U.S. High
Yield
4%
Int'l Bonds
4%
Int'l large-cap
13%
Emerging
Markets
3%
Int'l large-cap
overweight
7%
Balanced toward Growth Granular
Allocation
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19. Slide 19
Diversification does not guarantee a profit or protect against losses.
Diversification does not guarantee a profit or protect against loss.
2014 Asset Allocation Effect: Negative
13.7%
-4.9%
6.0%
30.4%
13.2%
9.1% 7.5%
4.9%
2.5%
-2.2%
-17.0%
-20%
-10%
0%
10%
20%
30%
40%
Large Cap
(S&P 500)
International
Stocks
(MSCI EAFE)
US Bonds
(Barlays Agg)
Real Estate
(REITs)
Mid Cap
Stocks
Municipal
Bonds
Corporate
Bonds
Small Cap
Stocks
High Yield
Bonds
Emerging
Markets
Commodities
2014 Granular vs. Simple Asset Allocation
Source: Morningstar Direct
Simple Blend Portfolio, up 7.9%:
Mix of 49% S&P 500, 16% MSCI
EAFE, 35% BarCap Aggregate
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20. Slide 20
2014 Style Allocation Effect: Negative
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q4
Value - Growth 4.4% 0.0% 10.3% 7.8% -0.1% 9.4% -10.2% 1.4% -5.8% -4.9% 0.0% -1.1% -0.7% -2.6% -2.7%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Performance of Value vs. Growth Worldwide
Through December 2014
Source: Morningstar Direct
Value has underperformed
Growth on a worldwide basis for
an extended period
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21. EXP 30 APR 2015MKD-6687N-ASlide 21
2014 Fund Selection Effect: Negative
Outperformance proved
elusive for most active
managers in 2014