Quarterly Market Review Q2 2013

7/28/2019 Quarterly Market Review Q2 2013

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Q2Quarterly Market ReviewSecond Quarter 2013


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Quarterly Market ReviewSecond Quarter 2013

Overview:

Market Summary

Timeline of Events

World Asset Classes

US Stocks

International Developed Stocks

Emerging Markets Stocks

Select Country Performance

Real Estate Investment Trusts (REITs)

Commodities

Fixed Income

Global Diversification

Quarterly Topic: The Art of Letting Go

This report features world capital market performance

and a timeline of events for the last quarter. 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 and features a topic of the quarter.


3/14

US StockMarket

GlobalReal Estate

InternationalDevelopedStocks

US BondMarket

GlobalBondMarket

+2.69% -1.61% -4.39% -2.32% -1.73%

EmergingMarketsStocks

BONDSSTOCKS

-8.08%

Market Summary

3

Past performance is not a guarantee of future results. Indices a re not available for direct investme nt. Index performance does not reflect the expenses associated with the management of an actual p ortfolio.

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 Market (Barclays Global Aggregate Bond Index [Hedged to USD]). The S&P data are provided by Standard

& Poor's Index Services Group. Russell data copyright Russell Investment Group 19952013, all rights reserved. MSCI data copyright MSCI 2013, all rights reserved. Barclays data provided by Barclays Bank PLC. US long-

term bonds, bills, and inflation data Stocks, Bonds, Bills, and Inflation Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

Second Quarter 2013 Index Returns


4/14

-4%

-2%

0%

2%

4%

6%

8%

3/31 4/30 5/31

Timeline of Events: Quarter in Review

4The graph illustrates the MSCI All Country World Index ( net div.) daily returns over the quarter. Source: MSCI data copyright MSCI 2013, all rights reserved. The events highlighted are not intended to explain market

movements. The index is not available for direct investment. Past performance is not a guarantee of future results.

Second Quarter 2013

Gold posts its largest 1-day decline,falling more than $125 per ounce.

Fitch downgrades UK'scredit rating from AAA to

AA+, primarily due toweaker economic and

fiscal outlook.

87-year-old Giorgio Napolitano re-elected presidentof Italy following 2 months of political deadlock.

European Central Bank cuts itskey interest rate to 0.5%, downfrom its last change in July 2012.

Protests erupt in Gezi Park, Turkey, concerningredevelopment plans for new mosque andshopping center and later turn to anger againstgovernment policies.

Fed Chairman Ben Bernankeannounces possible scenario endingFeds unlimited bond-buying programbeginning later this year and ending itentirely in mid-2014.

Bank of Japan announces stimulus plan,injecting $1.4 trillion into economy in less than2 years and driving inflation up to 2%.

On May 22, Fed Reserve Chairman Ben Bernankementions possibility of tapering bond purchases ifeconomy continues to progress.

Citizens of Brazil protest against risingtransportation costs and allegedmisuse of government spending.

6/30


5/14

The US market led equity returns. Emerging markets strongly underperformed across all asset classes, with negative returns primarily driven

by poor performance in May and June.

-9.82

-8.30

-8.08-7.47

-3.49

-2.32

-1.61

-1.29

-1.26

0.01

2.91

3.08

3.20

MSCI Emerging Markets Value Index (net div.)

S&P Global ex US REIT Index (net div.)

MSCI Emerging Markets Index (net div.)

MSCI Emerging Markets Small Cap Index (net div.)

MSCI World ex USA Small Cap Index (net div.)

Barclays US Aggregate Bond Index

MSCI World ex USA Index (net div.)

Dow Jones US Select REIT Index

MSCI World ex USA Value Index (net div.)

One-Month US Treasury Bills

S&P 500 Index

Russell 2000 Index

Russell 1000 Value Index

World Asset Classes

5

Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio.

Market segment (index representation) as follows: US Large Cap (S&P 500 Index); US Small Cap (Russell 2000 Index); US Value (Russell 1000 Value Index); US Real Estate (Dow Jones US Select REIT Index); Global Real

Estate (S&P Global ex US REIT Index); International Developed Large, Small, and Value (MSCI World ex USA, ex USA Small, and ex USA Value Indexes [net div.]); Emerging Markets Large, Small, and Value (MSCI Emerging

Markets, Emerging Markets Small, and Emerging Markets Value Indexes); US Bond Market (Barclays US Aggregate Bond Index); and Treasury (One-Month US Treasury Bills). The S&P data are provided by Standard & Poor'sIndex Services Group. Russell data copyright Russell Investment Group 19952013, all rights reserved. MSCI data copyright MSCI 2013, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by Dow

Jones Indexes. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, and inflation data Stocks, Bonds, Bills, and Inflation Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G.

Ibbotson and Rex A. Sinquefield).



6/14

2.06

2.47

2.69

2.91

3.08

3.20

3.74

Large Cap Growth

Small Cap Value

Marketwide

Large Cap

Small Cap

Large Cap Value

Small Cap Growth

Ranked Returns for the Quarter (%)

US Stocks

6


Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio.Market 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: Russell 3000 Index is used as the proxy for the US market. Russell data copyright

Russell Investment Group 19952013, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Gro up.

All major US asset classes, with the exception of REITs,

maintained positive performance in the 2nd quarter, with

the broad market returning 2.69%. Asset class returns

ranged from 3.74% for small growth stocks to 2.06% for

large growth stocks.

Across the size spectrum, returns were mixed. Small

growth outperformed large growth, and large value

outperformed small value.

Period Returns (%) * Annualized

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

Marketwide 21.46 18.63 7.25 7.81

Large Cap 20.60 18.45 7.01 7.30

Large Cap Value 25.32 18.51 6.67 7.79

Large Cap Growth 17.07 18.68 7.47 7.40

Small Cap 24.21 18.67 8.77 9.53

Small Cap Value 24.76 17.33 8.59 9.30

Small Cap Growth 23.67 19.97 8.88 9.63

49%US Market$17.7 trillion

World Market CapitalizationUS


7/14

International Developed StocksSecond Quarter 2013 Index Returns

Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio.Market 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: Non-US developed market proxies are the respective developed country portions of the MSCI All Country World IMI ex USA Index.

Proxies for the UK, Canada, and Australia are the relevant subsets of the developed market proxy. MSCI data copyright MSCI 2013, all rights reserved.

International developed markets posted negative returns

for the quarter. The strong size premium present in the

first quarter was reversed in the second.

Consistent with the first quarter, the US dollar

appreciated relative to most major foreign developed

currencies, with the exception of the euro.

Across the size and style spectrum, large beat small

and value outperformed growth.

7



Large Cap 17.07 9.43 -0.84 7.86

Small Cap 17.82 10.80 2.06 10.25

Value 17.39 8.92 -0.61 7.97

Growth 16.73 9.88 -1.10 7.67

-0.73

0.33

0.71

1.12

-3.49

-1.95

-1.61

-1.26

Small Cap

Growth

Large Cap

Value

Ranked Returns for the Quarter (%) US Currency Local Currency

40%InternationalDeveloped

Market$14.2 trillion

World Market CapitalizationInternational Developed


8/14

Emerging Markets Stocks

8


Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio.Market 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: Emerging markets proxies are the respective emerging country portions of the MSCI All Country World IMI ex USA

Index. MSCI data copyright MSCI 2013, all rights reserved.

Emerging markets continued to post negative returns.

There was a marginal size premium, with small caps

outperforming large caps by 61 basis points. Across the

style spectrum, growth outperformed value by 3.41%.

The US dollar appreciated vs. most emerging

markets currencies.

-6.21

-4.42

-4.39

-2.71

-9.82

-8.08

-7.47

-6.41

Value

Large Cap

Small Cap

Growth

Ranked Returns for the Quarter (%) US Currency Local Currency



Large Cap 2.87 3.38 -0.43 13.66

Small Cap 9.86 3.72 4.55 14.74

Value -1.21 1.72 -0.46 14.66

Growth 6.89 5.00 -0.47 12.63

11%EmergingMarkets

$4.0 trillion

World Market CapitalizationEmerging Markets


9/14

Select Country Performance

9Country performance based on respective indices in the MSCI All Country World IMI Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholding

tax on dividends. MSCI data copyright MSCI 2013, all rights reserved. Russell data copyright Russell Investment Group 19952013, all rights reserved.

The majority of developed and emerging markets countries posted negative returns in the second quarter. Japan continued to outperformmost developed market countries. The best-performing emerging markets country was Hungary, which exited its recession in the first quarter.


-13.93

-10.38

-9.96

-7.48

-6.33

-6.10

-5.78

-4.61

-4.45

-4.45

-3.92

-3.63

-3.05

-2.16

-0.68

-0.64

-0.29

0.50

0.82

2.66

2.69

2.71

2.83

4.40

Australia

New Zealand

Greece

Canada

Singapore

Sweden

Norway

Hong Kong

Belgium

Israel

Denmark

Ireland

Austria

UK

Portugal

Spain

Switzerland

Finland

Italy

France

USA

Germany

Netherlands

Japan

Developed Markets (% Returns)

-27.46

-17.32

-15.46

-14.87

-13.25

-11.18

-9.97

-9.73

-8.82

-8.69

-8.58

-8.36

-7.42

-6.83

-6.76

-5.60

-4.66

-3.16

1.59

6.24

13.18

Peru

Brazil

Turkey

Chile

Colombia

Mexico

Korea

Egypt

Philippines

Russia

Thailand

Czech Republic

South Africa

Indonesia

China

India

Poland

Morocco

Taiwan

Malaysia

Hungary

Emerging Markets (% Returns)


10/14

Real Estate Investment Trusts (REITs)Second Quarter 2013 Index Returns

Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio.Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Dow Jones US Select REIT Index data provided by Dow Jones . S&P Global ex US REIT Index data

provided by Standard and Poors 2013.

REITs had negative performance during the quarter, with

International REITs strongly underperforming US REITs

by approximately 7%.

International REITs experienced their first negative

quarter for the first time in the last year and a half.



US REITs 7.69 18.08 6.97 10.68

Global REITs (ex US) 14.28 15.47 2.20 7.91

10

59%US

$443 billion84 REITs

41%World ex US$312 billion172 REITs(19 othercountries)

Total Value of REIT Stocks

-8.30

-1.29

Global REITs (ex US)

US REITs



11/14

CommoditiesSecond Quarter 2013 Index Returns

Past performance is not a guarantee of future results. Index is not available for direct invest ment. Index performance does not reflect th e expenses associated with the management of an act ual portfolio.

All index returns are net of withholding tax on dividends. Dow Jones-UBS Commodity Index Total Return data provided by Dow Jones .

Commodities continued to decline, as the DJ-UBS

Commodity Index gave up a further 9.5% during

the quarter.

Precious metals bore the brunt of the market decline.

Global economic uncertainty abated somewhat, and the

perceived safe haven status of gold and silver was less

attractive. The ease with which investors could sell these

commodities via exchange-traded funds was a focus ofinvestor attention.

Soft commodities, with the exception of lean hogs and

soybeans, lost ground, and the energy complex traded

down during the quarter as global economic activity

appeared to wane.

Asset Class Q2 1 Year 3 Years** 5 Years** 10 Years**

Commodities -9.45 -8.01 -0.26 -11.61 2.39


-31.57

-23.39

-18.12

-15.03

-13.92

-11.79

-11.06

-9.18

-9.04

-9.01

-6.61

-6.26

-6.25

-6.13

-5.49

-3.83

-1.99

-1.69

5.09

8.55

Silver

Gold

Nickel

Coffee

Natural Gas

Unleaded Gas

Copper

Aluminum

Soybean Oil

Corn

Brent Oil

Heating Oil

WheatSugar

Cotton

Zinc

Live Cattle

WTI Crude Oil

Soybean

Lean Hogs

Individual Commodity (% Returns)

11


12/14

2.48

4.63

-3.01-3.41

10-Year USTreasury

State andLocal

Municipals

Bond Yields across Different Issuers

Period Returns (%)


One-Month US Treasury Bills (SBBI) 0.06 0.06 0.19 1.59

Bank of America Merrill Lynch Three-Month T-Bills 0.11 0.11 0.29 1.72Bank of America Merrill Lynch One-Year US Treasury Note 0.31 0.41 1.06 2.11

Citigroup World Government Bond 1-5 Years (hedged) 1.10 1.53 2.84 3.14

US Long-Term Government Bonds (SBBI) -8.86 5.74 7.34 5.97

Barclays Capital Corporate High Yield 9.49 10.74 10.94 8.91

Barclays Capital Municipal Bonds 0.24 4.46 5.33 4.42

Barclays Capital US TIPS Index -4.78 4.63 4.41 5.20

* Annualized

Fixed Income

Past performance is not a guarantee of future results. Indices are not available for direct investmen t. Index performance does not reflect the expenses associated with the management of an actual po rtfolio. 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, i nflation, 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 copyright 2013 by Citigroup. The Merrill Lynch

Indices are used with permission; copyright 2013 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved.


Bond investors suffered during the

quarter, as the US Federal Reserve

offered indications that the market

interpreted as a nearer-than-

expected cessation of quantitative

easing. Yields soared in the US,

in particular for maturities beyond

3 years. The bellwether 10-year

lost significant ground, movingfrom a yield of 1.85% on March 31,

2013, to 2.49% at quarter end. The

majority of the move came in the

second half of the quarter.

The absence of meaningful

levels of inflation in the US

paced negative returns for TIPS

investors. Real rates turned

positive in longer-dated maturities.

Yield-seeking investors came

under pressure as credit

spreads widened in the difficult

environment.

12

0

1

2

3

4

1Yr

5Yr

10Yr

30Yr

US Treasury Yield Curve

6/30/13

3/31/13

6/30/12

AAA-AACorporates

A-BBBCorporates


13/14

10,000

20,000

30,000

40,000

50,000

60,000

70,000

06/1988 06/1993 06/1998 06/2003 06/2008 06/2013

Growth of Wealth: The Relationship between Risk and Return

Stock/Bond Mix

100% Stocks

75/25

50/50

25/75

100% Treasury Bills

Global Diversification

13


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. Assetallocations 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 portfolios rebalanced monthly. Data copyright MSCI 2013, 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 also have higher expected

returns over time.

-0.23

-0.16

-0.09

-0.04

0.01

100% Stocks

75/25

50/50

25/75

100% Treasury Bills


Ass et Class 1 Year 3 Years** 5 Years** 10 Years**

100% Stocks 17.21 12.96 2.86 8.14

75/25 12.74 9.85 2.63 6.75

50/50 8.38 6.66 2.10 5.19

25/75 4.16 3.39 1.28 3.47

100% Treasury Bills 0.06 0.06 0.19 1.59

* AnnualizedPeriod Returns (%)


14/14

In many areas of life, intense activity

and constant monitoring of results

represent the path to success.

In investment, that approach

gets turned on its head.

The Chinese philosophy of Taoism has a word

forit: wuwei. It literally means non-doing. Inother words, the busier we are with our long-term

investments and the more we tinker, the less

likely we are to get good results.

That doesnt mean, by the way, that we should

do nothing whatsoever. But it does mean that the

culture of busyness and chasing returns

promoted by much of the financial services

industry and media can work against our interests.

Investment is one area where constant activity

and a sense of control are not well correlated.

Look at the person who is forever monitoring

his portfolio, who fitfully watches business TV,

or who sits up at night looking for stock tips on

social media.

Financial science and experience show that our

investment efforts are best directed toward areas

where we can make a difference and away from

hings we cant control.

So we cant control movements in the market.

e cant control news. We have no say over the

headlines that threaten to distract us.

But each of us can control how much risk we take.e can diversify those risks across different

assets, companies, sectors, and countries. We do

have a say in the fees we pay. We can influence

ransaction costs. And we can exercise discipline

when our emotional impulses threaten to blow us

off-course.

These principles are so hard for people to absorb

because the perception of investment promoted

hrough financial media is geared around the

short term, the recent past, the ephemeral, the

narrowly focused and the quick f ix.

e are told that if we put in more effort on the

external factors, that if we pay closer attention to

he day-to-day noise, we will get better results.

Whats more, we are programmed to focus on

idiosyncratic riskslike glamor stocksinstead

of systematic risks, such as the degree to

which our portfolios are tilted toward the broad

dimensions of risk and return.

The consequence is that most individual investors

earn poor long-term returns.

This is borne out each year in the analysis of

investor behavior by research group Dalbar.

In 20 years, up to 2012, for instance, Dalbar

found the average US mutual fund investor

underperformed the S&P 500 by nearly

4 percentage points a year.1

This documented difference between simple

index returns and what investors receive is

often due to individual behaviorin beinginsufficiently diversified, in chasing returns, in

making bad timing decisions, and in trying to

beat the market.

This type of individual behavior reinforces the

ancient Chinese wisdom: By letting it go, it all

gets done. The world is won by those who let it

go. But when you try and try, the world is beyond

the winning.

The Art of Letting Go

14

Diversification does not protect against loss in declining markets. It is not possible to invest in an index.1. Quantitative Analysis of Investor Behavior, Dalbar, 2013.

Adapted from The Art of Letting Go by Jim Parker, Outside the Flags column on Dimensionals website, May 2013. This inf ormation is provided for ed ucational purposes only and should not be considered investment advice or

a solicitation to buy or sell securities. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Second Quarter 2013

Quarterly Market Review Q2 2013

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