Third Quarter Markets Review
Domestic equity markets recovered most of their August losses and finished the third quarter in positive territory. The S&P 500® Index finished September up +3.1% and +5.2% for the quarter. The Index gained +19.8% through the first nine months of 2013. Small and medium capitalization stocks outperformed large cap stocks in the third quarter and for the year-to-date period. Growth stocks, across all capitalization sizes, outperformed their value counterparts in September and the quarter and the year-to-date period. Within global equity markets, the United States ranked fifth out of 33 countries for the year-to-date period, with Ireland, Finland, Japan and Switzerland ranking higher.
During the third quarter, market anticipation of tapering the quantitative easing program drove interest rates higher until the Federal Reserve announced in September that the current level of asset purchases would continue. Fixed income markets rebounded in September after struggling earlier in the quarter. The 10-year and 30-year Treasury yields reached 2.99% and 3.92%, respectively, before the Fed announcement and ended the quarter at 2.61% and 3.69%, respectively. The Barclay's Aggregate Bond Index returned +0.57% for the quarter, with all sectors posting positive returns. Almost all of the positive performance was generated in September following the Fed announcement.
2013 Year-End Distribution Estimates
Sit Mutual Funds will distribute 2013 net realized capital gains and income to shareholders (of record on December 17th) on December 18, 2013. Those distributions will be available on at www.sitfunds.com on December 18th. For estimated distributions for the year 2013, please view the Estimates 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.
Read the full article "Manage Risk With Asset Allocations".