Ron Sloy posted his monthly Market Update video on February 9th, urging investors to remain calm and focus on their long-term goals. Coincidentally enough, the markets bottomed two days later with the Dow closing at 15,660. From there to the end of the quarter the benchmark moved nearly 13%, closing at 17,685; slightly higher than where it started the year.
Listed below are 2016's first-quarter returns of five major indexes:
BarCap US Agg Bond +3.03%
S&P 500 +1.35%
Russell 2000 -1.52%
MSCI EAFE (Europe) -3.01%
MSCI EM (Emerging Markets) +5.71%
These returns are hardly reflective of the massive volatility experienced throughout the quarter. The one number that really jumps out is the Barclays US Aggregate Bond index. Even in the significant and historic declining interest rate environment we've experienced this last decade, this index has yielded a quarterly return greater than 3% less than 15% of the time. This return was certainly spurred on by volatility in stocks, but now that we're beyond the first quarter we don't expect the trend to continue.
We built a slight overweight position within the Energy sector throughout this quarter, which provided a bright spot for our portfolios. We've also seen some leadership from the Emerging Markets, where we see good value. The three areas that disappointed in the first quarter were Financials, Technology and Europe. We see tremendous value and potential for all three, and look to gain participation from these allocations as the year progresses. We believe the markets have set a bottom for the year and that equity portfolios still have the possibility of double digit returns. However, continued volatility has to be expected. Those who remain calm and patient will be rewarded.
Performance numbers, interest rates and investment themes aside, there's only one lesson that is most important from this quarter; you cannot time the markets. Investors need to choose asset allocations that match their time horizon and risk tolerance. More importantly, however, they must stick to their long-term plan through good times and bad.
Thank you for your continued confidence and support. As always, please feel free to contact us directly if there's anything we can do to help.
Sloy, Dahl & Holst, Inc.