We saw mixed results in the investment markets this quarter across the major asset classes. In the US, large cap stocks were up 1.3% for the quarter but small caps were down 1.5%. Value outperformed growth in all US stock categories after trailing the past few years. On the international side, developed markets struggled and were down 2.9% while emerging markets rebounded from several years of poor performance to be up 5.8%. After finishing 2015 higher, interest rates fell again in the first quarter. The ten year treasury yield went from 2.2% to 1.9% and all fixed income categories finished the quarter in positive territory. REIT’s led the major asset classes again, after doing so in 2014 and 2015, as they were up 5.8% for the quarter. Commodities continue to lag other asset classes but were finally positive with a 0.4% return.
The year started out rocky in the equity markets as the S&P 500 index was down 5% for the month of January alone and was down over 10% by mid-February. Many pundits were saying we were in a global slowdown that would lead to a recession in the US. Oil was down 75% from its 2014 high while China and most other emerging markets were struggling. But then the S&P 500 started to rally and ended the quarter UP 1.3%! Emerging Markets finished up 5.7! While some investors may have been tempted to sell during this downturn in February, trying to time the market like this is very tough, if not impossible. Sometimes, doing nothing is the best strategy.
We believe a well-diversified portfolio is the best way to ride out the inevitable ups and downs of the markets. This part quarter reinforced this approach as many asset classes that struggled in 2015 were among the best performing in the first quarter of 2016. Emerging markets are a prime example as they were down almost 15% last year and also down in 2013 and 2014 but they were up 5.8% in the first quarter.
It’s never a good idea to chase top performing asset classes so we don’t recommend moving more money into emerging markets now. However this performance confirms our belief in keeping a diversified portfolio that includes emerging markets, even when it is hard to do. If you were wondering why you held on to your emerging markets allocation for the past few years, hopefully now you understand and are glad you did!