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
S&P MidCap 400
S&P SmallCap 600
Decline from pre-COVID highs
Max return YTD after 3/23/20 low
YTD return as of 9/15/20
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
Total Stock Market Index Share Classes
Assets per class (in billions)
Admiral Total Stock Index
Total Stock Market Index Institutional Plus
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.
Total Stock Institutional
Total Stock Market Index
Institutional Total Stock Plus
Total Stock Market Institutional Select
Institutional Total Stock
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.
Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual 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., fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the seventh consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2019. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016, 2018 and 2019.
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.
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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’sTop 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 Times300 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.
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