March 2021 Student of the Market Report
Click on the PDF below to read our most current “Student of the Market” report. This piece focuses on the investment environment and our thoughts on managing portfolios in this dynamic market. This issue covers February bond market returns, cash, mid-cap and large-cap stocks, and volatility.
Bond Market Returns
Since 1926, this January and February was the 2nd worst start of a year ever for bonds. The return was -2.2%. The only other start of the year that has been worse was in 1980 with -8.8%. For all of the worst starts, the next 10 months on average saw bond returns bounce back.
Cash on the Sidelines
There have been record assets in money market funds. There were 4.3 trillion dollars in money market funds in January 2021. In comparison, there was 2.3 trillion dollar in money market funds in January 2003.
Mid-Cap Stocks
Mid-cap stocks have been the “sweet spot” for stock returns over the long-term.
Large-Cap Versus Mid-Caps
Mid-cap stocks have trailed large-caps over the last 5 years. Large-cap has outperformed over last 5 years. Following the last peak in Large-cap outperformance, Mid-cap stocks went on to outperform by 9.2% on average over the next 15 years (2/28/99 –2/28/14).
U.S. Minimum Volatility Stocks
This graph shows U.S. minimum volatility stock performance cycles. Minimum Volatility has underperformed over the last 3 years. Following the last peak in Large-cap outperformance, Minimum Volatility went on to outperform by 1.0% on average over the next 3 years (9/30/14 –9/30/17).
Missing the Best and Worst Days
This bar graph shows the return if an investor missed the best and worst days in the stock market. The return is the average annual return for each hypothetical scenario. Market timing doesn’t really move the needle, but reducing volatility might.
Systematic Investing
This chart shows the amount an investor needed to invest each month to reach $1 million over given time frame, based on historical S&P 500 returns.