Fourth Quarter Markets Review
Global equities performed well in 2013, as aggressive monetary policy by the world’s central banks has, to this point, been enough to overcome a sluggish period for corporate earnings growth amid tepid expansion in the global economy.
U.S. equities’ performance in 2013 was the strongest performance, by most measures, in 16 years. Higher market valuations and the potential for rising interest rates may slow the market’s momentum.
As a result of the Federal Reserve’s announcement that it will reduce the current bond buying programs, yields for intermediate and long Treasury maturities rose +0.3% to 0.4% in the fourth quarter of 2013 and rose over +1.0% for the year. We expect short maturities to remain extraordinarily low throughout 2014.
2013 Year-End Distribution Amounts
Sit Mutual Funds distributed 2013 net realized capital gains and income to shareholders (of record on December 17th) on December 18, 2013. For distribution amounts for the year 2013, please view the Distribution Table.
Manage Risk With Asset Allocation
Asset allocation is a very important part of risk management within an investment portfolio. By investing in multiple asset classes, such as stocks, bonds, real estate, etc., that do not have closely correlated returns, investors can lower the variability of the returns that their portfolio experience over time. After an allocation method has been selected, periodically rebalancing the portfolio becomes an integral component to this process.
Through different allocation and diversification strategies, it may be possible to create portfolios with reduced risk (as measured by return variability) that can produce more consistent returns. For example, the S&P 500® Index, which is often used as a proxy for U.S. large cap stocks, fluctuated in annual returns from a low of -37.00% (2008) to a high of 26.47% (2009) for the five years ended December 31, 2012, while the Barclays U.S. Aggregate Bond Index, a proxy for the U.S. taxable bond market, only fluctuated between +4.22% (2012) and +7.84% (2011) over the same time period. During the calendar year of 2008, a portfolio comprised of holdings from both indices would have experienced a smaller decline than one made up entirely of the S&P 500 Index. In 2012, investing only in bonds (as defined by the Barclays U.S. Aggregate Bond Index) would have produced a positive return of 4.22%, but adding stocks to the equation would have increased the return on a portfolio for that year.
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