navigating market declines & volatility - redw€¦ · navigating market declines & volatility. ......

The information provided herein is for informational purposes only and should not be construed as financial, investment, tax, accounting or legal advice.

expertise.

Navigating Market Declines & Volatility

Market Update PresentationMarch19, 2020 Presented by:

Paul Madrid, CFA®, CFP®, AIFA®, PrincipalDaniel Yu, CFA®, AIF®, Chief Investment Officer

Robert Elzholz, CRPC®, AIF®, AAMS, Senior Investment Manager

• Welcome• Markets Over Time• Current Market Environment• Questions & Answers

agenda.

Markets Over Time

4

Stock market since 1900

Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.

Guide to the Markets – U.S. Data are as of March 17, 2020.

15

Equi

ties

S&P Composite IndexLog scale, annual

1

10

100

1,000

1900 1909 1918 1927 1936 1945 1955 1964 1973 1982 1991 2000 2010 2019

Recessions

Tech boom(1997-2000)

End of Cold War

(1991)

Reagan era(1981-1989)

Post-Warboom

New Deal(1933-1940)

Roaring 20s

Progressive era (1890-1920)

World War I(1914-1918) Great

Depression(1929-1939)

World War II(1939-1945)

Korean War(1950-1953)

Vietnam War(1969-1972)Oil shocks

(1973 & 1979)

Stagflation (1973-1975)

Global financial crisis (2008)

BlackMonday(1987)

The Market’s Response to Crisis

5

• In US dollars. • Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy: 12% S&P 500 Index, 12% Dimensional US Large Cap Value Index, 6% Dow

Jones US Select REIT Index, 6% Dimensional International Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% FTSE World Government Bond Index 1-5 Years (hedged), 10% FTSE World Government Bond Index 1-3 Years (hedged), 10% ICE BofA 1-Year US Treasury Note Index. Assumes monthly rebalancing. For illustrative purposes only. S&P and Dow Jones data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. ICE BofA index data © 2019 ICE Data Indices, LLC. FTSE fixed income indices © 2019 FTSE Fixed Income LLC. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Dimensional indices use CRSP and Compustat data.

• Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See “Balanced Strategy Disclosure and Index Descriptions” pages in the Appendix for additional information.

Performance of a Balanced Strategy: 60% Stocks, 40% BondsCumulative Total Return

19%

-2%

16%

2%

-1%

4%7%

33%

23% 25%

2%

40%

12%

36%

76%

61%

52% 51%

81%

47%42%

After 1 year After 3 years After 5 years

October 1987:Stock Market Crash

August 1989:US Savings and

Loan Crisis

September 1998:Asian ContagionRussian CrisisLTCM Collapse

March 2000:Dot-Com Crash

September 2001:Terrorist Attack

September 2008:Bankruptcy of

Lehman Brothers

August 2011:US Debt

Downgrade

A History of Market Ups and Downs

6

• Chart end date is 12/31/2019, the last trough to peak return of 31% represents the return through December 2019.• Bear markets are defined as downturns of 10% of greater from new index highs. Bull markets are subsequent rises following the bear market trough through the next new market high. The chart shows bear markets and bull markets,

the number of months they lasted and the associated cumulative performance for each market period. Results for different time periods could differ from the results shown.• Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.• Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

S&P 500 Index total returns in USD, January 1926–December 2019

#65206_0618

Using a 10% threshold for downturns

1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

S&P

500

Inde

x To

tal R

etur

n (L

ogar

ithm

ic S

cale

)

0%

-1%

1,000%

-100%

-14%3 months

Bull Market

Bear Market

193%44 months

815%167 months 491%

116 months

105%48 months

90%43 months

12%5 months

52%26 months

76%30 months

86%27 months

86%33 months

282%61 months

355%92 months

63%24 months

108%61 months

385%115 months

-10%7 months

-14%14 months

-17%20 months

-15%5 months

-15%2 months

-45%25 months

-51%16 months

-43%21 months

-30%3 months

-83%34 months

-22%6 months

-22%6 months

-16%8 months

-15%5 months

-29%19 months

71%30 months

31%12 months

Average Annualized Returns after Market Decline of More than 10%

7

• In US dollars.• Past performance is no guarantee of future results. Declines are defined as months ending with the market below the previous market high by at least 10%. Annualized compound returns are computed for the relevant time periods

after each decline observed and averaged across all declines for the cutoff. There were 1,127 observation months in the sample. January 1990–present: S&P 500 Total Returns Index. S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. There is always a risk that an investor may lose money.

S&P 500, 1/1926–12/2019

11.3%10.2%

9.6%

0%

5%

10%

15%

1-YearLook Ahead Period



Annu

alize

d Co

mpo

und

Retu

rn

Many Investors Follow Their Emotions

8

People may struggle to separate their emotions from their investment decisions.

Following a reactive cycle of excessive optimism and fear may lead to poor decisions at the worst times.

NervousnessOptimism

Fear

Elation

Optimism

Picking the Fastest Lane Isa Stressful Guessing Game

9

Likewise, trying to anticipate the movement of the market adds anxiety and undue risk.

Reacting Can Hurt Performance

10

• Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.• In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and

reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s). Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. • S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. “One-Month US T- Bills” is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. Data is calculated

off rounded daily index values.

Performance of the S&P 500 Index, 1990–2019

Missing only a few days of strong returns can drastically impact overall performance.

TotalPeriod

Missed 1 Best

Day

Missed 5 Best Single

Days


Days


Days

One-Month

US T-Bills

Annualized Compound Return 9.96% 9.56% 8.47% 6.56% 4.99% 2.72%

$17,273

$15,480

$11,459

$6,733

$4,314

$2,235

Gro

wth

of $

1,00

0

Markets Now

What Affects a Stock’s Current Price?

12

Given all information, a stock’s current price reflects aggregate expectations about risk and return.

All Available Information

A company’s equity, its prospects for future earnings, and perceived risk

Price

13

Sources of earnings per share growth

Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management.EPS levels are based on annual operating earnings per share except for 2019, which is quarterly. Percentages may not sum due to rounding. Past performance is not indicative of future returns. *4Q19 earnings are calculated using actual earnings for 97.8% of S&P 500 market cap and earnings estimates for the remaining companies.


8

Equi

ties

S&P 500 year-over-year operating EPS growthAnnual growth broken into revenue, changes in profit margin & changes in share count

Share of EPS growth 4Q19* Avg. '01-18Margin 5.1% 4.2%Revenue 5.4% 3.2%Share Count 1.3% 0.3%Total EPS 11.8% 7.7%

-31%

19% 19%24%

13% 15%

-6%

-40%

15%

47%

15%

0%

11%5%

-11%

6%

17%22%

4% 4%

-4%

12%

4Q19*

-60%

-40%

-20%

0%

20%

40%

60%

14

The length and strength of expansions

Source: BEA, NBER, J.P. Morgan Asset Management. *Chart assumes current expansion started in July 2009 and continued through February 2020, lasting 128 months so far. Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflect information through February 2020. Past performance is not a reliable indicator of current and future results.Guide to the Markets – U.S. Data are as of March 17, 2020.

16Length of economic expansions and recessions Strength of economic expansionsCumulative real GDP growth since prior peak, percent

Average length (months):

Expansions: 48 months

Recessions: 15 months

Number of quarters0

20

40

60

80

100

120

140

1900 1912 1921 1933 1949 1961 1980 2001

128 months*

-6%

4%

14%

24%

34%

44%

54%

0 8 16 24 32 40 48

4Q482Q53

3Q57

2Q60

4Q73

4Q69

1Q803Q81

3Q90

1Q01

4Q07

Prior expansion peak

15

Consumer finances

Source: FactSet, FRB, J.P. Morgan Asset Management; (Top and bottom right) BEA.

Data include households and nonprofit organizations. SA – seasonally adjusted. *Revolving includes credit cards. Values may not sum to 100% due to rounding. **4Q19 figure for debt service ratio is J.P. Morgan Asset Management estimate.


18Consumer balance sheet Household debt service ratio4Q19, trillions of dollars outstanding, not seasonally adjusted Debt payments as % of disposable personal income, SA

3Q07 Peak $85.6tn1Q09 Low $74.6tn

Household net worthNot seasonally adjusted, USD billions

Other non-revolving: 2%Revolving*: 7%Auto loans: 7%

Other liabilities: 9%Student debt: 10%

Other financial assets: 42%

Mortgages: 66%

Pension funds: 21%

Deposits: 8%

Other tangible: 5%

Homes: 24%

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

1Q80: 10.6%

4Q07: 13.2%

4Q19**: 9.7%

9%

10%

11%

12%

13%

14%

'80 '85 '90 '95 '00 '05 '10 '15

3Q07: $71,338

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Total liabilities: $16.6tn

Total assets: $134.9tn

4Q19: $118,368

Assets Liabilities

16

Oil markets

Source: J.P. Morgan Asset Management; (Top and bottom left) EIA; (Right) FactSet; (Bottom left) Baker Hughes.

*Forecasts are from the March 2020 EIA Short-Term Energy Outlook and start in 2020. **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. WTI crude prices are continuous contract NYM prices in USD.


28Change in production and consumption of liquid fuels Price of oilProduction, consumption and inventories, millions of barrels per day WTI crude, nominal prices, USD/barrel

Production 2017 2018 2019 2020* 2021* Growth since '17 U.S. 15.7 17.9 19.5 20.9 20.8 32.8% OPEC 37.4 37.3 35.2 34.2 34.5 -7.8% Russia 11.2 11.4 11.5 11.6 11.5 2.8% Global 98.1 100.8 100.6 102.1 102.4 4.4%Consumption U.S. 20.0 20.5 20.5 20.5 20.7 3.8% China 13.6 14.0 14.5 14.6 15.4 13.4% Global 98.7 100.0 100.8 101.1 102.9 4.2%Inventory Change -0.6 0.8 -0.2 1.0 -0.4

U.S. crude oil inventories and rig count**Million barrels, number of active rigs

0

500

1,000

1,500

2,000

2,500

900

950

1,000

1,050

1,100

1,150

1,200

1,250

'13 '14 '15 '16 '17 '18 '19 '20

Inventories (incl. SPR) Active rigs

Jul. 3, 2008: $145.29

Feb. 12, 2009: $33.98

Jun. 13, 2014:

$106.91

Feb. 11, 2016: $26.21

Mar. 17, 2020:

$26.95$0

$20

$40

$60

$80

$100

$120

$140

$160

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

17

S&P 500 valuation measures

Source: FactSet, FRB, Robert Shiller, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management.

Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since March 1995, and FactSet for March 17, 2020. Average P/E and standard deviations are calculated using 25 years of IBES history. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price to book ratio is the price divided by book value per share. Price to cash flow is price divided by NTM cash flow. EY minus Baa yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’s Baa seasoned corporate bond yield. Std. dev. over-/under-valued is calculated using the average and standard deviation over 25 years for each measure. *P/CF is a 20-year average due to cash flow data availability.


5S&P 500 Index: Forward P/E ratioValuation measure Description Latest

25-year avg.*

Std. dev. Over-/under-

ValuedP/E Forw ard P/E 14.49x 16.32x -0.58CAPE Shiller's P/E 23.59 27.27 -0.60Div. Yield Dividend yield 2.50% 2.08% -1.17P/B Price to book 2.60 2.97 -0.51P/CF Price to cash f low 10.64 10.59 0.03EY Spread EY minus Baa yield 2.79% 0.00% -1.41

25-year average: 16.32x

+1 Std. dev.: 19.46x

-1 Std. dev.: 13.17x

Mar. 17, 2020:14.49x

8x

10x

12x

14x

16x

18x

20x

22x

24x

26x

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

18

International equity earnings and valuations

Source: FactSet, MSCI, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management.

*Valuations refer to NTMA P/E for Europe, U.S., Japan and developed markets and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S., which is the S&P 500. All indices use IBES aggregate earnings estimates, which may differ from earnings estimates used elsewhere in the book. MSCI Europe includes the eurozone as well as countries not in the currency bloc, such as Norway, Sweden, Switzerland and the UK (which collectively make up 46% of the overall index). Past performance is not a reliable indicator of current and future results.


46

Inte

rnat

iona

l

Global earnings Global valuations EPS, local currency, next 12 months, Jan. 2006 = 100 Current and 25-year historical valuations*

20

40

60

80

100

120

140

160

180

200

220

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

JapanEurope

U.S.

EM

16.32x 16.08x

14.57x

21.48x

14.26x

12.89x

10.38x

10.61x

1.78x

1.58x

0.0x

0.4x

0.8x

1.2x

1.6x

2.0x

2.4x

2.8x

3.2x

3.6x

4.0x

4.4x

4.8x

5.2x

5x

9x

13x

17x

21x

25x

29x

33x

U.S. DM Europe Japan EM

53xAxis

Pric

e-to

-ear

ning

s Price-to-book

Current25-year range25-year average

19

Bear markets and subsequent bull runs

Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management.

*A bear market is defined as a 20% or more decline from the previous market high. The related market return is the peak to trough return over the cycle. Periods of “Recession” are defined using NBER business cycle dates. “Commodity spikes” are defined as movement in oil prices of over 100% over an 18-month period. Periods of “Extreme Valuations” are those where S&P 500 last 12 months’ P/E levels were approximately two standard deviations above long-run averages, or time periods where equity market valuations appeared expensive given the broader macroeconomic environment. “Aggressive Fed Tightening” is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude. Bear and Bull returns are price returns.


14

U.S. recessions and S&P 500 composite declines from all-time highs

Characteristics of bull and bear markets

1 Crash of 1929 - Excessive leverage, irrational exuberance Sep 1929 -86% 32 Jul 1926 152% 372 1937 Fed Tightening - Premature policy tightening Mar 1937 -60% 61 Mar 1935 129% 233 Post WWII Crash - Post-war demobilization, recession fears May 1946 -30% 36 Apr 1942 158% 494 Eisenhower Recession - Worldwide recession Aug 1956 -22% 14 Jun 1949 267% 855 Flash Crash of 1962 - Flash crash, Cuban Missile Crisis Dec 1961 -28% 6 Oct 1960 39% 136 1966 Financial Crisis - Credit crunch Feb 1966 -22% 7 Oct 1962 76% 397 Tech Crash of 1970 - Economic overheating, civil unrest Nov 1968 -36% 17 Oct 1966 48% 258 Stagflation - OPEC oil embargo Jan 1973 -48% 20 May 1970 74% 319 Volcker Tightening - Whip Inflation Now Nov 1980 -27% 20 Mar 1978 62% 3210 1987 Crash - Program trading, overheating markets Aug 1987 -34% 3 Aug 1982 229% 6011 Tech Bubble - Extreme valuations, .com boom/bust Mar 2000 -49% 30 Oct 1990 417% 11312 Global Financial Crisis - Leverage/housing, Lehman collapse Oct 2007 -57% 17 Oct 2002 101% 60

Current Cycle Mar 2009 274% 132- -42% 22 - 156% 54

Bull return

Duration (months)Market correction

Averages

Market peak

Bear return*

Duration (months)*

Recession Commodity Spike

Aggressive Fed

Extreme Valuation

Bull begin date

Bear Market Macro environment Bull markets

12

3

45

6

7

8

9 10

1112

-100%

-80%

-60%

-40%

-20%

0%

1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018

Recession

20% Market decline*

Markets Have Rewarded Discipline

20• In US dollars. MSCI data © MSCI 2020, all rights reserved. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. • Past performance is no guarantee of future results.

Growth of a dollar—MSCI World Index (net dividends), 1970–2019

A disciplined investor looks beyond the concerns of today to the long-term growth potential of markets.

$0

$1

$10

$100 $69

1970 1980 1990 2000 2010 2019

US home prices hit bottom

Fiscal cliff worries

Eurozone debt crisis

S&P 500 down 46%

Subprime mortgage

crisis

Hurricanes Katrina

and RitaIraq war begins

Dotcom stock crash

9/11 terrorist attacks

Y2K Scar

e

Russian financial

crisisAsian

currency crisis

Income tax rates rise

Iraq invades Kuwait

Savings and loan crisis

Dow drops 23% on Black Monday

US inflation at 13.5%

BusinessWeek: “The Death of Equities”

Gold hits record high

S&P 500 down 43%

Oil prices quadruple

Arab oil embargo

Brexit

21

Annual returns and intra-year declines

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.

Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2019, over which time period the average annual return was 8.9%.


13S&P 500 intra-year declines vs. calendar year returnsDespite average intra-year drops of 13.8%, annual returns positive in 30 of 40 years

26

-10

1517

1

26

15

2

12

27

-7

26

47

-2

34

20

3127

20

-10-13

-23

26

9

3

14

4

-38

23

13

0

13

30

11

-1

10

19

-6

29

-22-17 -18 -17

-7

-13-8 -9

-34

-8 -8

-20

-6 -6 -5-9

-3-8

-11

-19

-12-17

-30-34

-14

-8 -7 -8 -10

-49

-28

-16-19

-10-6 -7

-12 -11

-3

-20

-7

-30

YTD

-60%

-40%

-20%

0%

20%

40%

'80 '85 '90 '95 '00 '05 '10 '15 '20

Distribution of US Market Returns

22• In US dollars. CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1−10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization

of all securities listed on the NYSE, AMEX, and NASDAQ exchanges. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

CRSP 1–10 Index returns by year1926–2019 1949

20.2195120.7196321.0

199311.1

198221.0

19700.0

201411.6

201721.1

Positive Years: 70 74% 19530.7200412.0

199621.4

Negative Years: 24 26% 20110.8195912.7

194421.5

19601.2

195213.4

198322.0

201930.4

19871.7

201613.6

197922.6

199731.4

19482.1

196814.1

199824.3

200331.6

1966-8.7

19392.8

196514.5

195525.2

198532.2

1932-8.6

19473.6

200615.5

199925.2

193632.3

1973-18.1

1940-7.1

19344.1

194216.1

197626.8

198032.8

1929-15.2

1946-6.2

19844.5

196416.1

196126.9

192733.5

2000-11.4

1990-6.0

20075.8

197116.1

193828.2

199134.7

2001-11.1

2018-5.0

20056.2

201216.2

194328.4

201335.2

1969-10.9

1977-4.3

19787.5

198616.2

196728.7

199536.8

1930-28.8

1962-10.2

1981-3.6

19568.3

197216.8

200928.8

192838.4

193544.4

2008-36.7

1974-27.0

1941-10.1

2015-0.5

19268.4

201017.7

198928.9

194538.5

195845.0

1931-43.5

1937-34.7

2002-21.1

1957-10.0

1994-0.1

19929.8

198818.0

195029.6

197538.8

195450.0

193356.7

-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60%Annual Return Range

Sheet1

194920.2

195120.7

196321.0

199311.1198221.0

19700.0201411.6201721.1

Positive Years:7074%19530.7200412.0199621.4

Negative Years:2426%20110.8195912.7194421.5

19601.2195213.4198322.0201930.4

19871.7201613.6197922.6199731.4

19482.1196814.1199824.3200331.6

1966-8.719392.8196514.5195525.2198532.2

1932-8.619473.6200615.5199925.2193632.3

1973-18.11940-7.119344.1194216.1197626.8198032.8

1929-15.21946-6.219844.5196416.1196126.9192733.5

2000-11.41990-6.020075.8197116.1193828.2199134.7

2001-11.12018-5.020056.2201216.2194328.4201335.2

1969-10.91977-4.319787.5198616.2196728.7199536.8

1930-28.81962-10.21981-3.619568.3197216.8200928.8192838.4193544.4

2008-36.71974-27.01941-10.12015-0.519268.4201017.7198928.9194538.5195845.0

1931-43.51937-34.72002-21.11957-10.01994-0.119929.8198818.0195029.6197538.8195450.0193356.7

-50% to -40%-40% to -30%-30% to -20%-20% to -10%-10% to 0%0% to 10%10% to 20%20% to 30%30% to 40%40% to 50%50% to 60%

Annual Return Range

23

Time, diversification and the volatility of returns63

Source: Barclays, Bloomberg, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management.

Returns shown are based on calendar year returns from 1950 to 2019. Stocks represent the S&P 500 Shiller Composite and Bonds represent Strategas/Ibbotson for periods from 1950 to 2010 and Bloomberg Barclays Aggregate thereafter. Growth of $100,000 is based on annual average total returns from 1950 to 2019.


Range of stock, bond and blended total returnsAnnual total returns, 1950-2019

Annual avg. total return

Growth of $100,000 over 20 years

Stocks 11.3% $844,684Bonds 5.9% $313,75850/50 portfolio 8.9% $555,161

-39%

-8%

-15%-3% -2%

1%

-1% 1% 2%6%

1%5%

47%43%

33%28%

23% 21% 19%16% 16% 17%

12% 14%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1-yr. 5-yr.rolling

10-yr.rolling

20-yr.rolling

24

Diversification and the average investor64

Source: J.P. Morgan Asset Management; (Top) Barclays, Bloomberg, FactSet, Standard & Poor’s; (Bottom) Dalbar Inc.

Indices used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Bloomberg Barclays U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz., Inflation: CPI. 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high-quality U.S. fixed income, represented by the Bloomberg Barclays U.S. Aggregate Index. The portfolio is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/18 to match Dalbar’s most recent analysis.


Portfolio returns: Equities vs. equity and fixed income blend

20-year annualized returns by asset class (1998 – 2018)

$30,000

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

$240,000

$270,000

$300,000

Oct '07 Oct '08 Oct '09 Oct '10 Oct '11 Oct '12 Oct '13 Oct '14 Oct '15 Oct '16 Oct '17 Oct '18 Oct '19

40/60 stocks & bonds60/40 stocks & bondsS&P 500

Mar. 2009: S&P 500 portfolio loses over $50,000

Nov. 2009: 40/60

portf olio recov ers

Oct. 2010:60/40 portf olio

recov ers

Mar. 2012: S&P 500 recov ers

Oct. 2007: S&P 500 peak

9.9%

7.7%7.0%

5.6% 5.2% 5.0% 4.5% 4.0% 3.4%2.2% 1.9%

0%

2%

4%

6%

8%

10%

12%

REITs Gold Oil S&P 500 60/40 40/60 Bonds EAFE Homes Inflation AverageInvestor

25

Source: Barclays, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management.

Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Barclays Global HY Index, Fixed Income: Bloomberg Barclays US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg Barclays 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg Barclays US Aggregate, 5% in the Bloomberg Barclays 1-3m Treasury, 5% in the Bloomberg Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/04 – 12/31/19. Please see disclosure page at end for index definitions. All data represents total return for stated period. The “Asset Allocation” portfolio is for illustrative purposes only. Past performance is not indicative of future returns.


60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Ann. Vol.EM

Equity REITsEM

EquityFixed

IncomeEM

Equity REITs REITs REITsSmall Cap REITs REITs

Small Cap

EM Equity Cash

Large Cap

Fixed Income

Large Cap REITs

34.5% 35.1% 39.8% 5.2% 79.0% 27.9% 8.3% 19.7% 38.8% 28.0% 2.8% 21.3% 37.8% 1.8% 31.5% 1.8% 9.0% 22.2%

Comdty. EM Equity Comdty. CashHigh Yield

Small Cap

Fixed Income

High Yield

Large Cap

Large Cap

Large Cap

High Yield

DM Equity

Fixed Income REITs Cash REITs

EM Equity

21.4% 32.6% 16.2% 1.8% 59.4% 26.9% 7.8% 19.6% 32.4% 13.7% 1.4% 14.3% 25.6% 0.0% 28.7% 0.5% 8.3% 22.1%

DM Equity

DM Equity

DM Equity

Asset Alloc.

DM Equity

EM Equity

High Yield

EM Equity

DM Equity

Fixed Income

Fixed Income

Large Cap

Large Cap REITs

Small Cap

High Yield

Small Cap Comdty.

14.0% 26.9% 11.6% -25.4% 32.5% 19.2% 3.1% 18.6% 23.3% 6.0% 0.5% 12.0% 21.8% -4.0% 25.5% -14.5% 7.9% 18.6%

REITs Small CapAsset Alloc.

High Yield REITs Comdty.

Large Cap

DM Equity

Asset Alloc.

Asset Alloc. Cash Comdty.

Small Cap

High Yield

DM Equity

Asset Alloc.

EM Equity

Small Cap

12.2% 18.4% 7.1% -26.9% 28.0% 16.8% 2.1% 17.9% 14.9% 5.2% 0.0% 11.8% 14.6% -4.1% 22.7% -17.0% 7.8% 17.7%

Asset Alloc.

Large Cap

Fixed Income

Small Cap

Small Cap

Large Cap Cash

Small Cap

High Yield

Small Cap

DM Equity

EM Equity

Asset Alloc.

Large Cap

Asset Alloc.

Large Cap

High Yield

DM Equity

8.1% 15.8% 7.0% -33.8% 27.2% 15.1% 0.1% 16.3% 7.3% 4.9% -0.4% 11.6% 14.6% -4.4% 19.5% -21.4% 7.2% 17.3%

Large Cap

Asset Alloc.

Large Cap Comdty.

Large Cap

High Yield

Asset Alloc.

Large Cap REITs Cash

Asset Alloc. REITs

High Yield

Asset Alloc.

EM Equity Comdty.

Asset Alloc.

Large Cap

4.9% 15.3% 5.5% -35.6% 26.5% 14.8% -0.7% 16.0% 2.9% 0.0% -2.0% 8.6% 10.4% -5.8% 18.9% -23.1% 6.6% 14.0%

Small Cap

High Yield Cash

Large Cap

Asset Alloc.

Asset Alloc.

Small Cap

Asset Alloc. Cash

High Yield

High Yield

Asset Alloc. REITs

Small Cap

High Yield REITs

DM Equity

High Yield

4.6% 13.7% 4.8% -37.0% 25.0% 13.3% -4.2% 12.2% 0.0% 0.0% -2.7% 8.3% 8.7% -11.0% 12.6% -24.1% 5.3% 10.9%

High Yield Cash

High Yield REITs Comdty.

DM Equity

DM Equity

Fixed Income

Fixed Income

EM Equity

Small Cap

Fixed Income

Fixed Income Comdty.

Fixed Income

EM Equity

Fixed Income

Asset Alloc.

3.6% 4.8% 3.2% -37.7% 18.9% 8.2% -11.7% 4.2% -2.0% -1.8% -4.4% 2.6% 3.5% -11.2% 8.7% -25.7% 4.1% 10.0%

Cash Fixed IncomeSmall Cap

DM Equity

Fixed Income

Fixed Income Comdty. Cash

EM Equity

DM Equity

EM Equity

DM Equity Comdty.

DM Equity Comdty.

DM Equity Cash

Fixed Income

3.0% 4.3% -1.6% -43.1% 5.9% 6.5% -13.3% 0.1% -2.3% -4.5% -14.6% 1.5% 1.7% -13.4% 7.7% -29.1% 1.3% 3.4%

Fixed Income Comdty. REITs

EM Equity Cash Cash

EM Equity Comdty. Comdty. Comdty. Comdty. Cash Cash

EM Equity Cash

Small Cap Comdty. Cash

2.4% 2.1% -15.7% -53.2% 0.1% 0.1% -18.2% -1.1% -9.5% -17.0% -24.7% 0.3% 0.8% -14.2% 2.2% -33.5% -2.6% 1.0%

2005 - 2019

Paul Madrid, CFA®, CFP®, AIF®, Principal

Daniel Yu, CFA®, AIF®, Chief Investment Officer

Robert Elzholz, CRPC®, AIF®, AAMS, Senior Investment Manager

Q&A

Navigating Market Declines & Volatilityagenda.Markets Over TimeSlide Number 4The Market’s Response to CrisisA History of Market Ups and DownsAverage Annualized Returns �after Market Decline of More than 10%Many Investors Follow Their EmotionsPicking the Fastest Lane Is�a Stressful Guessing GameReacting Can Hurt PerformanceMarkets NowWhat Affects a Stock’s Current Price?Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Markets Have Rewarded DisciplineSlide Number 21Distribution of US Market ReturnsSlide Number 23Slide Number 24Slide Number 25Q&A

navigating market declines & volatility - redw€¦ · navigating market declines & volatility. ......

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