Q4 | 2014 - Questis Quarterly Market Review Call

Q4

Quarterly Market ReviewFourth Quarter 2014

Investment Committee

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!! Chief Operating Officer John M. Tabb III, CFP®, AIF® [email protected] (843) 376-1321 ! Portfolio Specialist Dan Callahan [email protected] (843) 628-5329 !!! Chief Product Officer James Carlson [email protected] (843) 376-1320

Quarterly Market ReviewFourth Quarter 2014

Overview:

Market Summary for Q4

World Stock Market Performance (US and Intl.)

World Asset Classes

US Stocks

International Developed Stocks

Emerging Markets Stocks

Real Estate Investment Trusts (REITs)

Commodities

Fixed Income

Global Diversification

Questis Performance

This report features world capital market performance and a timeline of events for the past quarter and year of 2014. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets.

The report also illustrates the performance of globally diversified portfolios.

US Stock Market

Global Real Estate


US Bond Market

Global Bond Market ex US

+5.24% -3.69% +9.68% +1.79%


BONDSSTOCKS

-4.50%

Market Summary

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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: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real

Estate (S&P Global REIT Index), US Bond Market (Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor's

Index Services Group. Russell data © Russell Investment Group 1995–2015, all rights reserved. MSCI data © MSCI 2015, all rights reserved. Barclays data provided by Barclays Bank PLC. Citigroup bond indices © 2014 by

Citigroup.

Fourth Quarter 2014 Index Returns

+3.02%

5Graph Source: MSCI ACWI Index. MSCI data © MSCI 2015, all rights reserved.

It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

6Graph Source: MSCI ACWI Index. MSCI data © MSCI 2015, all rights reserved.

It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

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US Equity Markets The US equity markets—and particularly the large cap segment of the market—logged a strong year. The S&P 500 Index returned 13.69%; the NASDAQ Composite Index gained 13.40%; and the Russell 2000, a popular benchmark for small company US stocks, returned 4.89%.

International and Emerging Markets Non-US developed stock markets experienced negative performance across almost all major indices (references in USD). The MSCI World ex USA Index, a benchmark for large cap stocks in developed markets outside the US, returned -4.32%. The small cap and value versions of the MSCI EAFE index returned -4.95% and -5.39%, respectively. Emerging markets proved no exception, with the MSCI Emerging Markets Index returning -2.19%

Fixed Income Returns of major fixed income indices were positive due to falling yields and rising prices. One-year US Treasury notes returned 0.18%, US government bonds 4.92%, world government bonds (1–5 years USD hedged) 1.90%, and US TIPS 3.64%.

Real Estate and Commodities Real estate securities had a banner year: The Dow Jones US Select REIT Index returned 32.00%, and the S&P Global ex US REIT Index returned 10.94%. Commodities were negative for the fourth year in a row, with the Bloomberg Commodity Total Return Index returning -17.01%.

World Asset Classes - 2014 Index Returns

Ranked Returns for the Quarter (%)

Large Cap Growth

Large Cap

Large Cap Value

Marketwide

Small Cap Value

Small Cap

Small Cap Growth 10.05

9.73

9.40

5.24

4.98

4.93

4.78

US Stocks

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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 represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI

Index. Russell 3000 Index is used as the proxy for the US market. Russell data © Russell Investment Group 1995–2015, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group.

The US equity market performed better than most other markets for the quarter. Small cap indices outperformed large cap indices.

Marketwide value indices outperformed growth indices, and large and mid-cap value i n d i c e s o u t p e r f o r m e d t h e i r g ro w t h counterparts. However, value underperformed growth among both small and micro cap stocks.

REITs, which are included to varying degrees in many benchmarks, boosted index returns.

Period Returns (%) * Annualized

Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years**

Marketwide 12.56 12.56 20.51 15.63 7.94Large Cap 13.69 13.69 20.41 15.45 7.67Large Cap Value 13.45 13.45 20.89 15.42 7.30Large Cap Growth 13.05 13.05 20.26 15.81 8.49Small Cap 4.89 4.89 19.21 15.55 7.77Small Cap Value 4.22 4.22 18.29 14.26 6.89Small Cap Growth 5.60 5.60 20.14 16.80 8.54

Aggressive: 45%

Moderate: 30%

Conservative: 15%

ALLOCATION


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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 represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI World ex USA IMI Index used as the proxy for the

International Developed market. MSCI data © MSCI 2015, all rights reserved.

International developed broad market indices measured in US dollars underperformed the US indices but outperformed emerging markets as a group. Small caps slightly outperformed large caps.

Value underperformed growth across all size segments.

The US dollar strengthened against most currencies during the quarter.

Q4 Ranked Returns (%)

Growth

Small Cap

Large Cap

Value -5.1719

-3.6922

-3.3796

-2.2162

US currency

* Annualized


Large Cap -4.32 -4.32 10.47 5.21 4.64Small Cap -5.35 -5.35 11.77 7.91 5.87Value -5.41 -5.41 10.46 4.52 4.18Growth -3.26 -3.26 10.43 5.85 5.04

Period Returns (%)

Aggressive: 27%

Moderate: 18%

Conservative: 9%

ALLOCATION


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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 represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI Emerging Markets IMI

Index used as the proxy for the emerging market portion of the market. MSCI data © MSCI 2015, all rights reserved.

Broad market emerging markets indices underperformed developed markets, including the US.

Small cap indices underperformed large cap indices for the quarter. Value indices underperformed growth indices in large caps and mid-caps but outperformed in small caps.

The US dollar strengthened against most currencies during the quarter.


Growth

Large Cap

Small

Value -6.4395

-6.023

-4.5047

-2.6067

US currency

* Annualized


Large Cap -2.19 -2.19 4.04 1.78 8.43Small Cap 1.01 1.01 7.65 2.93 9.63Value -4.08 -4.08 1.79 0.51 8.59Growth -0.35 -0.35 6.24 3.00 8.22

Period Returns (%)

Aggressive: 10%

Moderate: 7%

Conservative: 4%

ALLOCATION

Real Estate Investment Trusts (REITs)

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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. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex US REIT Index.

Dow Jones US Select REIT Index used as proxy for the US market and S&P Global ex US REIT Index used as proxy for the World ex US market. 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 Index Services Group © 2014.

US REITs outperformed the broad equity market for the quarter. REIT indices in d ev e l o p e d m a r k e t s o u t s i d e t h e US outperformed broad market equity indices.


US REITs

Global REITs (ex US) 2.9817

15.092



US REITs 32.00 32.00 16.10 16.99 8.13 Global REITs (ex US) 10.94 10.94 14.42 9.86 4.29Aggressive: 9%

Moderate: 7.50%

Conservative: 6%

ALLOCATION

Asset Class YTD Q4 1 Year 3 Years** 5 Years** 10 Years**

Commodities -17.01 -12.10 -17.01 -9.43 -5.53 -1.86


Commodities

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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. Securities and commodities data provided by Bloomberg.

Commodities were broadly negative during the fourth quarter. The Bloomberg Commodity Index fell 12.10%. Energy led the decline with WTI crude oil and natural gas returning -40.65% and -32.49%, respectively.

Wheat was the best performer with a gain of 21.82%.

After experiencing negative returns in the third quarter, corn and soybeans gained a respective 19.70% and 10.44% in the fourth quarter.

Q4 Ranked Returns for Individual Commodities (%)

Wheat

Corn

Soybeans

Cotton

Live Cattle

Soybean Oil

Gold

Zinc

Copper

Aluminum

Nickel

Silver

Sugar

Lean Hogs

Coffee

Heating Oil

Natural Gas

Unleaded Gas

Brent Oil

WTI Crude Oil -40.6519

-40.2033

-38.5649

-32.4892

-30.1823

-15.8088

-13.9409

-11.7325

-8.8458

-7.5781

-6.4082

-5.8896

-5.3641

-2.342

-2.2035

-0.8205

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0.399

10.437

19.697

21.823

Aggressive: 5.40%

Moderate: 4.50%

Conservative: 3.60%

ALLOCATION

Bond Yields across Issuers

10-Year US Treasury Muni HQ Corporates MQ Corporates

3.313

2.519

3.56

2.17

Fixed Income

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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 © 2014 by Citigroup. The BofA Merrill Lynch Indices are

used with permission; © 2014 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly owned subsidiary of Bank of America Corporation.


Interest rates across US fixed income markets general ly declined during the quarter. The yield on the 10-year Treasury note ended at 2.17%, a dip of 34 basis points over the period. (One basis point equals one-hundredth of a percentage point.) Long-term US Treasury bonds gained 27% in 2014.

Period Returns (%)


BofA Merrill Lynch Three-Month US Treasury Bill Index 0.04 0.04 0.07 0.09 1.54BofA Merrill Lynch 1-Year US Treasury Note Index 0.18 0.18 0.23 0.41 2.00Citigroup WGBI 1−5 Years (hedged to USD) 1.90 1.90 1.54 1.78 3.11Long-Term Government Bonds 23.87 23.87 4.29 9.88 7.48Barclays US Aggregate Bond Index 5.97 5.97 2.66 4.45 4.71Barclays US Corporate High Yield Index 2.45 2.45 8.43 9.03 7.74Barclays Municipal Bond Index 9.05 9.05 4.30 5.16 4.74Barclays US TIPS Index 3.64 3.64 0.44 4.11 4.38

* Annualized

US Treasury Yield Curve

0

1

2

3

4

1 Yr

5 Yr

10 Yr

30 Yr

12/31/14

12/31/13

9/30/14

Aggressive: 0%

Moderate: 40% • 20% Short-Term • 12% Global • 8% TIPS

Conservative: 60% • 30% Short Term • 18% Global • 12% TIPS

ALLOCATION

Growth of Wealth: The Relationship between Risk and Return

$10,000

$27,500

$45,000

$62,500

$80,000

01/1988 10/1989 07/1991 04/1993 01/1995 10/1996 07/1998 04/2000 01/2002 10/2003 07/2005 04/2007 01/2009 10/2010 07/2012 04/2014

Stock/Bond Mix

100% Stocks

!75/25

50/50

25/75

100% Treasury Bills

Global Diversification

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Diversification does not eliminate the risk of market loss. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect expenses associated

with the management an actual portfolio. Asset allocations and the hypothetical index portfolio returns are for illustrative purposes only and do not represent actual performance. Global Stocks represented by MSCI All Country

World Index (gross div.) and Treasury Bills represented by US One-Month Treasury Bills. Globally diversified allocations rebalanced monthly, no withdrawals. Data © MSCI 2015, all rights reserved. Treasury bills © Stocks, Bonds,

Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

These portfolios illustrate the performance of different global stock/bond mixes and highlight the benefits of diversification. Mixes with larger allocations to stocks are considered riskier but have higher expected returns over time.

12/2014

Randomness of Returns

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!• We often hear the term “The Lost Decade” for US stocks. This was coined after the S&P500 essentially returned 0%

for the period 2000 to 2010.

• If an investor held a globally diversified portfolio during this same time period, the results are much different. For instance, a sample 70/30 portfolio during this period, consisting of US and International Stocks, REIT’s, and Bonds, archived an annualized return of 8.4%. *

• Global Diversification is important for risk reduction, but it also allows you to capture returns wherever they may occur, and helps take the guesswork out of investing. You never know which markets will outperform year to year, as the graphic above illustrates.

!!!*Source: http://www.forbes.com/sites/feeonlyplanner/2012/08/21/a-lost-decade-not-the-case-for-all-investors/

http://www.forbes.com/sites/feeonlyplanner/2012/08/21/a-lost-decade-not-the-case-for-all-investors/

Asset Class Performance (Net of Fees)

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• The spread of YTD returns between the 100% stock portfolio and the 20/80 portfolio is remarkably tight. !• Bonds performed surprisingly well in 2014, contrary to many industry experts who predicted, yet again, that

interest rates would rise. The yield on 10-year T-Notes actually decreased in 2014. The Barclay’s Aggregate Bond Index, a widely used index to measure the “Bond Market’, was up ~6% for the year. !

• Real Estate Investment Trusts (REIT’s) had another strong year. US REIT’s were up 30% in 2014. !• Commodities struggled throughout the year, and got hit hard in Q4 due to the decline of oil prices.

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Coming Soon…

Questions? Contact us anytime. We are always here to help. !! Portfolio Specialist Dan Callahan [email protected] (843) 628-5329 !!!!!!

• Next week, we’ll distribute our Review, which covers major headlines, events and performance of global markets and economies for 2014.

• Ongoing quarterly review calls.

!

Q4 | 2014 - Questis Quarterly Market Review Call

Data & Analytics

Transcript of Q4 | 2014 - Questis Quarterly Market Review Call