Outlook | AIM

End of February Comments

Written by Brian Huckstep, CFA, CFP®, Chief Investment Officer

Goodbye February. The market has not been kind to investors so far in 2022. The S&P 500 index hit its all-time peak of 4,818.62 on 1/4/2022. Since then, it has been abruptly impacted by the war in Ukraine, concerns about high inflation, and the Fed’s announcements to increase interest rates in 2022. Between 1/1/2022 and 2/28/2022, the S&P 500 stock index dropped 8.0%. In the last 97 years (we have good data going back to 1926 thanks to the University of Chicago’s CRSP database), this was the 5th worst start to a year.

Total Return
Return For The
2 Months End
Current Events
End of the Great Recession
End of the Great Depression
Middle of the Great Recession
Ukraine, Inflation, and Rising Rates

Our long term, diversified portfolios are not down as much as the S&P 500 stock index because our diversifying asset classes have not experienced price declines as severe as the S&P 500 index, but all of our portfolios are down Year-To-Date (YTD). The table below shows YTD returns for asset classes we include in our portfolios, as well as returns for the last three years. Growth Stocks’ loss of 12.5% is the worst YTD return in the table, but as the third column shows, Growth Stocks were the highest returning asset class for the last 3 years so it shouldn’t be a big surprise that they would pull back the hardest in a subsequent downturn.

Asset Class
YD Total Return
3 Years 1/1/2019 to
Total Return
Representative Index Name
US Stocks
S&P 500
US Growth Stocks
Russell 1000 Growth
US Value Stocks
Russell 1000 Value
Small Cap US Stocks
Russell 2000
International Stocks
Emerging Market Stocks
MSCI Emerging Market Equity
High Yield Bonds
Bloomberg US Corporate High Yieldl 2000
Long Term Gov’t Bonds
Bloomberg Long Term US Treasury
Intermediate Bonds
Bloomberg US Aggregate Bond
3 Month T-Bills (Cash)
ICE BofA US 3 M Treasurv Bill
Data as of 3/1/2022

The S&P 500’s 3 year return of 100.4% is remarkable, as the average 3 year return for this index since 1926 has been 40.1%. Low corporate tax rates, low interest rates, and business friendly government have boosted returns.

As long term investors, we do not plan on making any big moves in our portfolios to try to predict the short term direction of asset classes. We include active fund managers in our portfolios who are experts in their asset classes and make active buys and sells to try to capture market alpha - a very difficult job with the diverse mix of recent economic events going on.

During March, we will be doing a deep dive review of each of the funds we use in our portfolios and I expect to make a couple of changes. I have not been happy with the performance of the Vanguard FTSE Emerging Markets ETF (ticker: VWO) that we include in our portfolios. The fund’s allocation to Chinese stocks is at 34%, while the average emerging market equity fund is at 28%. The extra China exposure has been a drag on performance over the last five years, as the stocks that US investors are permitted to purchase in China have trailed stocks from other emerging market countries. Often stocks and broad markets that fall behind averages for a few years have a tendency to rebound and outperform, but I am concerned that China may have implemented excessively burdensome restrictions on foreign investments that may cause their stocks to continue to trail global averages.

Another ETF that is “on watch” is Vanguard Short-Term Bond ETF (ticker: BSV). It spreads its investments between government bonds and corporate bonds. Relative to other short term bond funds, it has a higher than average allocation to very safe, but lower returning government bonds. We may want to switch to an alternative fund that mixes in an allocation to mortgage backed bonds that typically pay a bit more in return.


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Written by Brian Huckstep, CFA, CFP®, Chief Investment Officer