It was the best of times, it was the worst of times…

Dickens’ words seem to perfectly encapsulate this year’s bifurcated market returns.

Varying asset returns have been quite extreme YTD.   

• Growth is up approximately 30% YTD, whereas value is slightly negative.
•  The S&P 500 based on market capitalization weighting is up nearly 15% whereas an esoteric equal weighted index is actually negative YTD. 
• Large caps are up, mid-caps are barely positive, small caps are negative.
• Dividend yielding stocks are getting pounded, and non-dividend yielding stocks are flying high. 
• Four sectors are positive this year, seven are negative. 
• Communications Services and Technology are up over 44% YTD, Consumer Discretionary is up over 26%, Industrials up over 4% and other sectors are negative with the worst being Utilities down some 13%.
• With interest rates on the rise, the total return on bonds is slightly negative YTD.  Should the Bloomberg Aggregate Bond Index close at the current level, this would mark the third consecutive year of losses.

What does this mean for investors and portfolios?  For investors overweight large cap growth equities, this has been a champaign-popping year!  The market has gone up, up, up.  For portfolios concentrated in bonds, or those in value stocks, small or mid cap equities, or international stocks, returns have been negative to flat, this year.  Therefore, unfortunately the returns for more diversified portfolios have been muted YTD, at best. 

Does Diversification still work?  During a year such as this, one might question the merits of a diversified portfolio.  However, Harry Markowitz and his modern portfolio theory demonstrate that over time asset allocation and diversification offer improved returns with lower risk longer-term.  No reason to believe this dynamic has been permanently reversed.  Future Updates will highlight economic and market fundamentals. 

Thank you!  Appreciate the opportunity to share our thoughts.  We are honored and grateful for all who entrust us with their life savings.  Katie, Dell, and I are here should you need anything.  Thanks!