Owning equities had been fairly easy during the long, strong bull market of the past 10 years. One glance at the DJIA’s daily change in January 2020 shows how calm the markets were. But March was a different story. The Dow Jones Industrial Average (DJIA) recorded an average daily change of 5.3% in March, far outpacing the three most volatile months since 1915.
Average Absolute Daily Change1
Dow Jones Industrial Average, January 1915–March 2020
The Price of Admission2
S&P 500® Index Average Annual Returns—January 1928 through March 2020
Periodically, the long-term upward trend of equities has been interrupted by disturbing and unnerving declines. But volatility only becomes loss if we sell.
As the chart illustrates, performance of equities has been strong following a significant downturn, outpacing the market’s long-term average. Having already suffered the decline, investors may be well-advised to stick around for the recovery.
How? Three things can help:
- Invest in a broadly diversified portfolio.
- Select experienced active managers who emphasize quality.
- Focus on your long-term goals.
Performance of a Diversified Portfolio3 Q1 2020
Fear and uncertainty drove investors to sell—and buy—wildly on constantly changing news about the coronavirus and its economic impact.
- U.S. equities suffered declines across the board, with the S&P 500® Index down 19.6%, the Russell Midcap® Index down 27.1%, and the Russell 2000® declining 30.6%.
- Both developed and emerging markets suffered declines, as the MSCI EAFE® Index (net) lost 22.8% and the MSCI Emerging Markets Index (net) was down 23.6%.
- An oil price war and reduced demand drove energy sharply lower, leading the Bloomberg Commodity Index to lose 23.3%.
- During the turmoil, investors fled to the perceived safety of fixed income. U.S. bonds, as represented by the Bloomberg Barclays U.S. Aggregate Bond Index, returned 3.2%. Short-term U.S. Treasury Bills were up 0.5%. However, the Bloomberg Barclays U.S. Corporate High Yield Bond Index declined 12.7%.
ANNUALIZED RETURNS IN %, as of 3/31/2020
The Diversified Portfolio assumes the following weights in the following indexes: 20% in the S&P 500®, 10% in the Russell Midcap®, 5% in the Russell 2000®, 10% in the MSCI EAFE®, 5% in the MSCI EM, 5% in the MSCI ACWI Ex USA Small Mid Cap, 20% in the Bloomberg Barclays U.S. Aggregate, 5% in the Bloomberg Barclays U.S. Corporate High Yield Bond, 5% in the Credit Suisse Leveraged Loan, 5% in the Bloomberg Barclays U.S. Treasury Bill 1-3 Month, 5% in the Bloomberg Commodity, and 5% in the FTSE Nareit Equity REITs. Assumes annual rebalancing. Data represents total return for stated period. The Diversified Portfolio is not representative of any Virtus portfolio. Investors should consult their financial professional to identify suitable portfolio allocations. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes reduces risk.
1 Nick Maggiulli, Of Dollars and Data. Data source: YCharts. Price only. 2 ©2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved. See NDR disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo. 3 Source: Virtus Performance Analytics.
Index Definitions—The Dow Jones Industrial Average (DJIA) is an index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The S&P 500® Index is a free-float market-capitalization weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The Russell Midcap® Index is a market capitalization-weighted index of medium-capitalization stocks of U.S. companies. The index is calculated on a total return basis with dividends reinvested. The Russell 2000® Index is a market capitalization-weighted index of the 2,000 smallest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The MSCI EAFE® Index (net) is a free-float-adjusted market-capitalization weighted index that measures developed foreign market equity performance, excluding the U.S. and Canada. The index is calculated on a total return basis with net dividends reinvested. The MSCI Emerging Markets Index (net) is a free float-adjusted market capitalization-weighted index designed to measure equity market performance in the global emerging markets. The index is calculated on a total return basis with net dividends reinvested. The MSCI AC World Ex USA Small Mid Cap Index (net) is a free float-adjusted market capitalization-weighted index that measures mid- and small-cap performance across 22 of 23 Developed Market countries (excluding the U.S.) and 24 Emerging Markets countries. The index is calculated on a total return basis with net dividends reinvested. The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures fixed rate non-investment grade debt securities of U.S. corporations, calculated on a total return basis. The Credit Suisse Leveraged Loan Index is a market-weighted index that tracks the investable universe of the U.S. dollar denominated leveraged loans. The index is calculated on a total return basis. The Bloomberg Barclays U.S. Treasury Bill 1-3 Month Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. The Bloomberg Commodity Index is composed of futures contracts on physical commodities and represents 22 separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. The FTSE Nareit Equity REITs Index is a free-float market capitalization-weighted index measuring equity tax-qualified real estate investment trusts, which meet minimum size and liquidity criteria, that are listed on the New York Stock Exchange, the American Stock Exchange, and the Nasdaq National Market System. The index is calculated on a total return basis with dividends reinvested. The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.
Past performance is not indicative of future results.
IMPORTANT RISK CONSIDERATIONS
Investing involves risks and the possible loss of principal. This report is based on the assumptions and analysis made and believed to be reasonable by the Adviser. However, no assurance can be given that the Adviser’s opinions or expectations will be correct. This report is intended for informational purposes only and should not be considered a recommendation or solicitation to purchase securities.
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