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Fourth Quarter Market Snapshot

Fourth Quarter Market Snapshot

Amid reduced fears of an economic and currency collapse in Europe, European and emerging markets stocks staged a strong comeback in Q4. Here’s a snapshot of how various asset classes performed during the quarter and for the year through December 31, 2012.

4th Quarter, 2012 Market Performance

MSCI EAFE 6.6%  
MSCI Emerging Markets 5.6%  
DJ Global Real Estate 5.0%  
Russell 2000 1.9%  
Barclays US Aggregate Bond 0.2%  
S&P 500 -0.4%  
S&P GS Commodity -3.3%  

Year-to-Date, 2012 Market Performance

DJ Global Real Estate 26.5%  
MSCI Emerging Markets 18.2%  
MSCI EAFE 17.3%  
Russell 2000 16.3%  
S&P 500 16.0%  
Barclays US Aggregate Bond 4.0%  
S&P GS Commodity 0.1%  

Source: Morningstar Direct and Bloomberg. Returns are index returns only,
and therefore do not reflect fund manager fees or Aspiriant fees.

If the financial markets dislike uncertainty, then the fourth quarter was destined to be a difficult one. To highlight a few of the many uncertainties that equity markets wrestled with during the quarter:

Despite this perilous backdrop, global equity markets generated strong returns for the quarter, topping off a very strong year that saw double-digit returns for all public equity asset classes. There was no clear catalyst for this strong performance; in fact, the global economy didn’t look all that different from 2011, a year that saw disappointing investment returns. But, amid the continuing anemic growth, there has been a steady stream of positive developments – clear indications that the US housing market has turned the corner, improving credit conditions, and concerted action in Europe to stabilize the debt crisis, to name a few. These incremental improvements are all important milestones on the road to recovery and markets responded accordingly.

"...many of the fundamental economic changes needed to set the stage for a more substantial recovery have already occurred…but political considerations are now largely driving the uncertainty in the global economy."

The 4.2% return of the US Aggregate Bond Index in 2012 masks very strong performance of Aspiriant’s preferred municipal bond implementations, which significantly outperformed the index’s performance without taking materially more credit or duration risk. Relatively high yields in the municipal bond market are slowly attracting more investors, but we still see plenty of opportunities for attractive risk-adjusted returns, especially as the economy continues to slowly heal.

For the last few years our view has been that the global economy will experience years of slow growth, as the economy works off the excesses of the real estate and debt bubbles. This expectation has proven to be largely correct. Going forward, indications are that the global economy will likely continue to experience weak growth, macroeconomic uncertainty and periods of heightened volatility. In our view, though, many of the fundamental economic changes needed to set the stage for a more substantial recovery have already occurred… US banks and consumers have made a lot of progress with deleveraging, corporations have large stockpiles of cash available to invest, and inflation is tame, to name a few of the factors supporting a recovery.

Political considerations are now largely driving the uncertainty in the global economy. Some of the biggest concerns weighing on the market include:

The problem with politics, of course, is that it’s inherently unpredictable, and markets have a tendency to react (overreact?) swiftly and severely in the face of uncertainty and fear. Substantial progress resolving these political uncertainties, along with continued improvement in economic fundamentals, could spur markets significantly higher in 2013, but we suspect that any progress will continue to be incremental and hard won.

In this environment, it is easy for investors to become distracted from the pursuit of their long-term objectives through a purposeful, long-term investment strategy, and the year 2012 clearly demonstrated the wisdom of patiently sticking with a thoughtful long-term plan. As advisors, it is especially important for us to focus on the long-term while being cognizant of shorter-term risks and responding to them as appropriate. We continue to work on risk management solutions and expect to implement significant changes this quarter.

Jason Thomas, PhD, CFA
Chief Investment Officer

Circular 230 Disclosure:

1Bureau of Labor Statistics, Change in Total Nonfarm Payroll Employment (June 2014).

Important disclosures: Past performance is no guarantee of future performance. All investments can lose value. Indices are unmanaged and you cannot invest directly in an index.

S&P 500 is a market-capitalization weighted index that includes the 500 most widely held companies chosen with respect to market size, liquidity, and industry. The volatility of an index may be materially different than that of a model. You cannot invest directly in an index. Index returns assume the reinvestment of dividends and capital gains. The MSCI ACWI All Cap Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. It is not possible to invest directly in an index. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

S&P GSCI: The S&P GSCI� is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment.

Wilshire Global RESI: Is a broad measure of the performance of publicly traded global real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). The index is capitalization-weighted.


Past performance is not indicative of future results. All investments may lose value. Indexes are unmanaged and may not be directly invested in.

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