WHAT YOU NEED TO KNOW ABOUT THE MARKETS
Weekly 3
WHAT YOU NEED TO KNOW ABOUT THE MARKETS
February 24, 2020
Week in Review
The week ended with stock markets lower as short-term speculators tried to determine the impact of the coronavirus on the economy. Cases of the virus are now more prominent in Europe. Global stocks were down more than 1%, but diversifiers, such as commodities, bonds, and REITs, moved higher on the week. U.S. growth stocks led the way down, falling about 1.5%. At CLS we urge to not trade short-term headlines.
Earnings reports will continue this week with headliners from Home Depot, Macy's, Lowe's, Best Buy, and J.C. Penney.
1 Omaha: Home of ETF Power Users
2 The Unbiased Portfolio
Market Performance
FIXED INCOME Cash Equivalent1
10-YEAR +0.56%
5-YEAR +1.07%
3-YEAR +1.67%
1-YEAR +2.04%
YTD +0.22%
as of 02/21/2020
QTD
LAST WEEK
+0.22%
+0.03%
U.S. Investment Grade Bonds2 EQUITIES Global Equity Market3
+3.89%
+3.45%
+4.72% +10.28% +2.46%
+2.46%
+0.57%
10-YEAR +9.44%
5-YEAR +7.97%
3-YEAR
1-YEAR
+10.83% +16.22%
YTD +1.35%
QTD
LAST WEEK
+1.35%
-1.27%
Total U.S. Market4
+13.93% +11.51% +14.01% +21.86% +3.83%
+3.83%
-1.10%
Domestic Large-Cap Equity5
+14.12% +12.40% +15.40% +24.61% +4.35%
+4.35%
-1.20%
Domestic Small-Cap Equity6
+12.00% +7.41%
+6.99%
+8.58%
+1.20%
+1.20%
-0.58%
International Equity7
+5.69%
+4.57%
+7.46%
+9.63%
-1.64%
-1.64%
-1.41%
Developed International Equity8 +6.01%
+4.50%
+7.49% +10.78%
-1.25%
-1.25%
-1.16%
Emerging Market Equity9 DIVERSIFIERS Diversified Alternatives10
+4.64%
+4.82%
+7.50%
+6.30%
-2.78%
-2.78%
-2.14%
10-YEAR +3.09%
5-YEAR +1.12%
3-YEAR +1.97%
1-YEAR +5.26%
YTD +0.75%
QTD +0.75%
LAST WEEK -0.18%
Commodity11
-4.97%
-4.71%
-2.95%
-4.89%
-5.52%
-5.52%
+1.18%
1Morningstar Cash Index 2Bloomberg Barclay's Capital U.S. Aggregate Bond Index 3Morningstar Global Market Large-Mid Index 4Morningstar U.S. Market Index 5Morningstar U.S. Large Cap Index 6Morningstar U.S. Small Cap Index 7Morningstar Gbl ex U.S. Large-Mid Index 8Morningstar DM ex U.S. Large-Mid Index 9Morningstar EM LargeMid Index 10Morningstar Diversified Alternatives Index 11Bloomberg Commodity Index.
3 Save More Right Now
2
Omaha: Home of ETF Power Users
Exchange traded funds are a popular topic at CLS Investments. We have been huge proponents of this structure. Some call them mutual funds, with benefits. For consumers, they are beneficial for two reasons: they are low-cost and tax-efficient. For asset managers, they are beneficial for two additional reasons: they offer intra-day price discovery, and they are fully transparent.
The growth of ETFs, illustrated below, has blown away that of mutual funds recently, but they still have a long way to go to catch up.
CLS Teal
CLS White
OAS Gray
ETF Growth
ETF Assets Reached More Than $4.4 Trillion Through 2019
$4500
$4000
$3500
AUM ($B)
$3000 $2500
34% Annual Growth 1998-2019
$2000
$1500
$1000
$500
$0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Morningstar, as of 12/31/2019
Since they were launched in 1993, ETFs have gained tremendous popularity. There are now more than 2,400 ETFs available, representing over $4.4 trillion in assets through 2019.
It seems everyone is buying ETFs these days (we've been buying since 1998). Even Omaha's own Berkshire Hathaway showed a stake in their most recent quarterly filing. A couple ETFs showed up as a small blip on the Berkshire Hathaway 13F, but it came as a big surprise to market prognosticators. In sum, Berkshire Hathaway added about $25 million in index funds. Specifically, those tracking the S&P 500 index (source: SEC / EDGAR).
It's hard to tell what the end goal of these ETFs are in the Berkshire Hathaway portfolio, or if they are part of smaller purchases for a pension fund.
Either way, with CLS, and now Berkshire, I guess you could say the city of Omaha is home to some substantial ETF power users.
Final note: This weekend, the annual Berkshire Hathaway shareholder letter was released. You can view it, and past ones, at letters/letters.html. The topics of retained earnings, buybacks, and succession planning were the headliners.
1
CASE EICHENBERGER, CIMA? Senior Client Portfolio Manager
3
The Unbiased Portfolio
Over the last 10 years, the global markets have seen significant growth. This came after a tough decade,1999-2009, which saw two major recessions and bear markets. As the tables on the first page clearly show, any overseas diversification has dragged on returns.
About every two or three years, we start getting questions on our global tilt and sometimes get "called out" for being biased against the U.S. stock market! One reader wrote to us recently and asked why we favor overseas stocks and bonds. The chart and commentary below help provide an answer.
CLS Teal OAS Gray
CLS White
A World of Opportunities
International markets account for almost three-fourths of global GDP and 96% of the global population; yet, the international market capitalization represents less than half of the global stock market. Such weights suggest that the U.S. is overvalued relative to the rest of the world and there are opportunities for growth within international markets. Additionally, there are over 40,000 listed stocks abroad (compared to about 4,000 domestically), which is an opportunity set that should not be overlooked.
Vast Opportunities Exist Outside U.S. Borders
Share of Global Market Capitalization
U.S.
Countries Outside the U.S.
53%
47%
Share of Global GDP
U.S.
Countries Outside the U.S.
24%
76%
Share of Listed Stocks
U.S.
Countries Outside the U.S.
10%
90%
Source: World Bank as of 12/31/2018
Share of Global Population
U.S.
Countries Outside the U.S.
4%
96%
We believe a global portfolio should be your baseline, not your bias. We also believe it should be your starting point, not your active decision about whether or not to even include in a portfolio. Here are some interesting facts about our global market and economy (some mentioned above).
2
4
The Unbiased Portfolio (cont.)
Share of Global Market Capitalization
U.S.
Countries Outside the U.S.
53%
47%
? This is an index that is tracked by funds that investors can buy for less than 0.10% per year.
? It is free float, meaning shares are easy to buy and sell in a common marketplace. ? It is ever expanding and, we believe, it should be your new baseline.
Share of economic GDP
U.S.
Countries Outside the U.S.
24%
76%
Source: Credit Suisse 2019
Share of total economic wealth
U.S.
Countries Outside the U.S.
30%
70%
Top 10 most innovative countries: U.S. No. 9 (behind Germany, Singapore, etc.)
Source: Bloomberg
The goal of this exercise is not place a bet that the U.S. stock market will lag the rest of the world over the next 10 years (it could), but to show that the entire globe is your new baseline, portfolio. Gone are the days when investors couldn't gain affordable access to these markets. You have no excuse anymore. Unless you are looking at past performance, but we know how that typically ends.
2
5
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related searches
- what you need to buy a house
- what you need to become a lawyer
- what you need to start a business
- what you need to become a teacher
- what you need to buy a car
- what you need to travel
- what to know about the stock market
- everything you need to know about stocks
- what you need to survive
- what you need to get a mortgage
- what do you need to know in public speaking
- what you need to purchase a home