FAANGs Make Their Mark on the Indexes September 16, 2020 Adviser Fund Update Print In This Issue:FAANGs Make Their Mark on the IndexesPodcast: Budgeting Made Simple—Three Ways to Boost Savings and Manage SpendingVanguard Boasts First Trillion-Dollar Mutual FundAdviser Investments’ Market TakeawaysFAANGs Make Their Mark on the Indexes One question that’s bedeviled casual observers of the market and savvy investors alike is how exactly has the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market managed to recover so quickly from a pandemic that’s still taking a toll on millions of ordinary Americans? It’s a complicated question to address. But a good way to start might be to pose a related question: Has “the market” actually recovered? In our recent special report on Indexing vs. Active Management, we note that when headlines trumpet the stock market’s performance, they almost always point to results from a handful of indexes—the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite. But none of these vaunted indexes really reflect the entire breadth of the stock market. The Dow contains only 30 handpicked stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company.; the S&P comprises 500 of the largest U.S. stocks by market cap; and the NASDAQ favors high-tech companies. And while each of these three indexes provides a window into the market, the views they’ve offered have looked pretty different during recent months, with the NASDAQ up over 25% year-to-date, the S&P up only about 7% and the Dow down slightly, as of this writing. That’s because much of the horsepower underlying the market’s recent rally can be attributed to the outsized outperformance of technology stocks, and primarily to a handful of tech giants in particular—Facebook, Apple, Amazon, Microsoft and Google. Sometimes grouped together as the “FAANGs”, the N, which stands for Netflix, is replaced by Microsoft in this case. At present, this handful of stocks are the five largest in the S&P 500. Together, they now make up more than 23% of the total value of the index by market cap—up from 17% at the end of 2019. Apple is perhaps the most salient example: In August 2018, it became the first U.S. company to reach a market capitalization of $1 trillion dollars. Just two years later, and despite the market’s March crash, the company has doubled that—becoming the world’s first $2-trillion company in August 2020. Since March, Apple’s stock price has not only recovered, it’s up 57.3% year to date through September 15. That kind of acceleration is far from commonplace—in any industry. The table below compares the peak-to-crash dips of the NASDAQ Composite, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600 on a total return basis. The tech-focused NASDAQ fell 30.0% in March from its pre-pandemic high earlier this year. Since then, it’s not only recovered, but skyrocketed, peaking on September 2, up 35.2% for the year. The broader S&P—which includes the FAANGs—was up 12.3% at its recent peak. In comparison, the two indexes that don’t include the tech giants, the S&P MidCap 400 and S&P SmallCap 600, have yet to recover from their crash in March. Stocks’ Recovery Depends on Your Point of View wdt_ID - NASDAQ S&P 500 S&P MidCap 400 S&P SmallCap 600 1 Decline from pre-COVID highs -30.0 -33.8 -42.0 -42.6 2 Max return YTD after 3/23/20 low 35.2 12.3 -3.6 -8.6 3 YTD return as of 9/15/20 25.6 6.7 -7.1 -13.2 Note: Table uses total return indexes. Source: Morningstar. When it comes to the stock market, it may not always be true that what goes up must come down. But here at Adviser Investments, we do think it’s always true that long-term investors are better off building diversified portfolios instead of chasing the latest trend—those have a way of cooling off just when least expected, as last week’s tech correction showed. Whether that correction was simply a blip or a warning of what’s to come, our approach is to carefully manage riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. while also making the most of our opportunities for extraordinary growth. Podcast: Budgeting Made Simple—Three Ways to Boost Savings and Manage Spending Think budgeting can’t be engaging and inspiring? Think again. The key is to keep it simple and find an approach that you can commit to. The best budgets are streamlined and in sync with your financial planning goals. Listen to financial planners Andrew Busa and Diana Linn as they present three smart ways to boost savings and manage your spending. Tune in to hear clear, actionable advice to help you build a budget that you can live with over the long term, including: The nuances of budgeting in different phases of your life Three distinct budgeting models to get you started Tips to avoid overspending and limit credit card debt Ideas to help you achieve financial accountability while retaining flexibility …and much more! A sound, realistic budget is your first step toward financial peace of mind—it’s a valuable tool, not a burden. These simple tips make it easy. Please click here to listen to the podcast today! Vanguard Boasts First Trillion-Dollar Mutual Fund Earlier this month, Vanguard boldly crossed a new frontier for mutual funds, with assets under management in its Total StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Market Index fund now topping $1 trillion across its eight share classes. That’s a tenfold increase from the $90 billion in the fund during the Financial Crisis of 2008–09. As the established name in index funds, Vanguard has benefited tremendously from the shift in investor demand from active funds to passive funds (though we think some of Vanguard’s active funds have excellent track records as well). Investors have benefited, too—Total Stock Market Index’s annualized return since the Great Recession has averaged 15% per year. At its current size, it represents about 17% of Vanguard’s total assets under management. 8 Share Classes, $1 Trillion wdt_ID Total Stock Market Index Share Classes Ticker Assets per class (in billions) 1 Admiral Total Stock Index VTSAX 261.90 2 Total Stock Market Index Institutional Plus VSMPX 206.50 3 Total Stock Market ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. VTI 166.20 8 Total Stock Institutional VITSX 164.60 9 Total Stock Market Index VTSMX 146.20 10 Institutional Total Stock Plus VITPX 40.70 11 Total Stock Market Institutional Select VSTSX 28.70 12 Institutional Total Stock VITNX 0.80 13 TOTAL 1,015.70 Sources: Morningstar, Adviser Investments. As of 9/3/20. Adviser Investments’ Market Takeaways Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’re providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market is telling us. Recently, EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Kate Austin talked about how the health care sector’s been holding up during the pandemic and Vice President Steve Johnson discussed the value of a comprehensive financial plan as market volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. returns. About Adviser Investments Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. RIA Channel® Top 100 Wealth Managers ranks wealth managers “based on a proprietary set of criteria and data. The ranking is based on both size and growth in assets as of June 30, 2020, as reported to the SEC. RIA Database (RIADatabase.com) was used for regulatory data, organic research, and advisor surveys.” (See https://www.riachannel.com/2020-top-100-wealth-manager-list-methodology/.) Adviser Investments did not verify any data—nor were we asked to—prior to ranking or publication. Regulatory Assets Under Management (“RAUM”) displayed on RIA Channel’s website is calculated by RIA Channel, not Adviser Investments. We did not independently calculate our RAUM as of June 30, 2020, nor do we know RIA Channel’s RAUM calculation methodology. RIA Channel has not published information on how many firms were considered for ranking, nor did it publish criteria used for inclusion for consideration on this ranking. Adviser Investments did not submit any information to RIA Channel regarding in this ranking, request to be considered for the ranking or pay any fee in connection with this recognition. For more information and a complete list of recipients and rankings, visit https://www.riachannel.com/top-100-wealth-manager-list-2020/. The Boston Business Journal’s “Largest Investment Advisers in Massachusetts” ranking is based on each participating firms’ assets under management as of June 1, 2020. Only firms that choose to participate are ranked and included on the top 25 list. The award sponsor has not disclosed how many firms were survey or considered for this recognition, nor the percentage of total participants that ultimately received recognition. Award is not indicative of future investment performance nor represents client experience. For more information and a complete list of recipients, visit https://www.bizjournals.com/boston/subscriber-only/2020/07/16/largest-independent-investment-advisers.html. The Barron’s Top 100 Independent Wealth Advisors rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit https://www.barrons.com/articles/are-ria-firms-growing-too-fast-the-story-behind-the-trend-51568420132. Years Received: 2019, 2018, 2017, 2016, 2015 & 2014. The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisers) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020; with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/report/top-financial-advisors/1000/2020?mod=article_inline. Years Received: 2020, 2019, 2018, 2017, 2016, 2015 & 2014 The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times and Ignites Research. According to the Financial Times, in 2019, approximately 2000 firms were invited to be considered for its list; 740 responded with 300 being named to this list. The listing reflects each practice’s performance in six primary areas: Assets under management (70-75% of a firm’s score), asset growth (15% of a firm’s score), years in existence, compliance record, credentials and online accessibility. For more information and a complete list of recipients visit https://www.ft.com/content/44d2b2b2-6cef-11e9-9ff9-8c855179f1c4. Years Received: 2019, 2018, 2016, 2015 & 2014. Awards referenced above do not consider client experience and are not indicative of such. Nor are awards indicative of future performance. Unless otherwise noted, Adviser Investments does not pay a fee to participate in any of these awards. Additionally, awards typically only consider and recognize participants that choose to participate; and are often based on information supplied by the participants—such information should not be assumed to be verified by the sponsor of the award. The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. 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