During the second quarter of 2021, the best performing asset classes were U.S. large stocks and real estate. The following chart shows the 1-year, 10-year, and 20-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending June 30, 2021
|
DFA Fund / Index |
1 Year Return |
10 Year Return* |
20 Year Return* |
|
S&P 500 Index |
40.79 |
14.84 |
8.61 |
|
DFA U.S. Large Value |
50.50 |
11.82 |
8.46 |
|
DFA U.S. Small |
65.00 |
11.86 |
9.71 |
|
DFA U.S. Small Value |
80.43 |
10.46 |
9.90 |
|
DFA Real Estate (REITs) |
32.85 |
10.10 |
10.31 |
|
DFA Int’l Large |
34.71 |
5.85 |
5.93 |
|
DFA Int’l Large Value |
45.08 |
3.96 |
6.46 |
|
DFA International Small |
45.01 |
7.54 |
9.75 |
|
DFA Int’l Small Value |
43.90 |
6.37 |
9.80 |
|
DFA Emerging Markets Core |
43.55 |
4.10 |
10.17 |
|
DFA 5-Year Global Bonds |
0.58 |
2.15 |
3.39 |
|
DFA Inflation Protected Bonds |
6.52 |
3.47 |
N/A |
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
Second quarter headlines were dominated by expanding availability of vaccines, relaxed Covid-19 restrictions, surprising corporate profits and warning signs of inflation. By the end of June, the US had delivered at least one shot to 66% of eligible adults. Covid-19 cases dropped quickly, and the economic numbers showed the strength of the consumer, as first quarter GDP hit 6.4% and second quarter GDP is estimated to hit 8.3%.
Corporate earnings during the first quarter came in with a 23.7% surprise above estimates according to JPMorgan. The second quarter is expected to deliver a 14.6% higher result than estimates. The global stock market reflected these good numbers by growing 6% this quarter.* Interestingly, the bond market also gained 1.52% this quarter as the US 10-year treasury yield actually dropped from 1.74% to 1.44%.
Despite the good economic and stock market numbers, the main topic of discussion over the past few months has been inflation. Stories of sky-high lumber and used car prices have spread wildly. We try to remain humble enough to avoid making predictions on the future for inflation, but there is evidence of supply starting to catch up with demand. More specifically, the lumber market futures, which involve traders making bets on the price of lumber several months out, have fallen approximately 50% from the high reached in early May.
It is important to point out that should inflation continue running higher than expected that several investment categories in our portfolios are well positioned to protect you. Typically, treasury inflation protected bonds (TIPs), short term bonds, real estate and value stocks have done well during inflationary periods. This year has proven no different as short-term bonds and TIPs have outperformed the US aggregate bond index. Real estate has outperformed the global stock market and US large value stocks have outperformed the S&P 500. As always though, we will continue to monitor the markets and rebalance as needed to control risk.
Just a reminder that we have completed our move from Las Vegas, NV to Hermosa Beach, CA. Please update our mailing address and phone numbers as follows:
Sparrow Wealth Management
565 Pier Ave #595
Hermosa Beach, CA 90254
SWM local number: (310) 870-1405 (press 1 for Chris or 2 for Naz)
SWM fax #: 877-330-9191
Thank you for your continued trust and confidence. As always, please don’t hesitate to call if you need to discuss something—that’s what we are here for.
Enjoy your summer!
*As measured by the Vanguard Total World Stock Index Fund (VTWIX)
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.
