On the heels of a strong opening three months of 2024, global stocks slowed during the second quarter. However, four countries — Turkey, Taiwan, South Africa and India — gained more than 10% in U.S. dollar denominated terms. 

The US markets continued focus on artificial intelligence (AI) and related technological advances drove positive performances with the Information Technology sector leading the way. Communication Services was the next best performing sector that contributed positively to global market returns this quarter. Real Estate Investment Trusts ("REITs") posted negative returns for the quarter, after falling in the first quarter as well. Globally, value stocks trailed growth stocks and small caps trailed large caps. Despite the underperformance of size and value, profitability was a bright spot in the premium environment, as stocks with higher profitability generally outperformed their lower profitability counterparts. (For a more thorough breakdown, see IFA Founder and CEO Mark Hebner's video below.) 

Aside from short-term market movement from quarter-to-quarter, it's important for investors focused on sticking to a strategic financial plan — one that is tailored to each IFA client's unique financial situation and offered on a complimentary basis  — to be aware of how returns are being reported. 

You have most likely heard Mark Hebner speak about total returns over the last few months, and on July 17, 2024 the DOW hit a milestone where the total return passed 100,000 for the first time. This is significant as what you see as price only returns reported by the media shows the DOW crossing 40,000. 

Although IFA Indexes and IFA Index Portfolios are presented as total returns, we've found in too many instances that investment gains and losses are frequently reported in the media as price only returns. Even major index providers such as S&P Global and FTSE/Russell set price only returns as the default measure on key data-generating sites, according to our own research. 

The distinction for investors, of course, is that price only returns don't include dividends and other distributions. How big of a difference does that make? As shown in a table we've created to illustrate recent gaps in returns reporting, since the inception of IFA the S&P 500 index had an annualized return during the period of 25 years and one day (ended March 5) of 5.78%. During this same timeframe, the bellwether U.S. index posted an annualized total return of 7.77%. 

Hebner is leading a petition drive to get industry leaders and major media players to stop reporting price only returns as a defacto standard. As Rodney Comegys, Vanguard's head of its global equity index group told him: 

"Price return calculations for indexes are largely a holdover from the early days of indexes. Before computers became ubiquitous, price returns were much simpler to calculate, and so became the default methodology for presenting index returns. Despite many decades of advancements in computing and the advantages of evaluating total returns, price return calculations are still commonly quoted. Vanguard believes that total returns present a more comprehensive assessment of the investor experience and should be the go-to method for presenting and discussing returns in the capital markets."

Hebner has developed a dedicated site for his petition drive, and he encourages all investors to add their signatures. (Names are being taken on a completely confidential basis.) You can find it and links to associated independent research on this issue — as well as comments provided to him from industry leaders — by clicking here.

"The impact of this omission is significant — dividends would have increased reported price-only index returns by an estimated annualized return of between two- and three-percent per year, or approximately twice the cumulative return, over the last quarter-century," Hebner wrote on the petition's home page.

Of note: The petition site also includes academic research looking into blatantly dour media reports based on price only returns over extended periods. These are based, according to such research, on exaggerated dips due to use of price instead of total returns. Even on a daily basis, the findings note that reporting "partial" returns — as Hebner refers to such numbers — can greatly skew results. Researchers found that calculating past daily returns on a total returns basis would've turned several reported "negative" days in the media into positive ones. Oops!

"This initiative on total returns reporting by Mark Hebner of IFA is a very significant one and will alter the landscape of the asset management industry, when the financial media begins to see the abundance of academic research on the topic," noted Pankaj Agrrawal, a finance professor at the University of Maine.

Domestic Equities 

For the second quarter domestic stocks gained ground although at a slower pace. Large-cap stocks continued their outperformance with large growth leading the way with a Q2 return of 8.66%. Small-cap stocks did the opposite of last quarter and finished the quarter in negative territory. The U.S. Small Cap Value Index slid to a -3.93% return for the quarter. 

International Equities

In Q2, the IFA International Small Cap Value Index topped returns of large-cap indexes returning a positive 0.50%. While returns remained mostly flat, the next best index, however, turned out to be the IFA International Value Index. It finished in negative territory at -0.37% for the quarter. The blended IFA index tracking international developed small-cap equity markets also finished negative in Q2 by returning -0.48%. 

Emerging Markets Equities

Stocks issued by companies based in developing countries continued to show positive results in Q2 and outperformed both US and non-US developed markets. In particular, IFA's Emerging Markets Value Index outperformed its sister emerging markets benchmarks. Meanwhile, all of these IFA emerging markets indexes finished the quarter with gains. Value outperformed growth and small-caps outperformed large-caps.

Real Estate Equities

Real estate markets around the world continued their Q1 decline and finished Q2 in negative territory. In the U.S., REITs slid on average by -0.16%, according to a survey of major global indexes by Dimensional Fund Advisors. That was less than real estate stocks in global ex-U.S. markets, which is significant since domestic REITs (real estate investment trusts) represented an estimated 70% of total global assets invested in real estate markets at the end of Q2 2024. Together, the IFA Global REIT Index returned -1.43% for the quarter.

Fixed-Income

In the second quarter of 2024, the 30-year U.S. Treasury rate increased by 0.17 of a percenate point to yield 4.51%. At the same time, the 10-year U.S. Treasury rate rose by 0.16 of a percentage point to 4.36%. Also, the five-year U.S. Treasury rate increased by 0.12 of a percentage point to 4.33%. Inflation based data shows U.S. Based CPI has come down to around 3.0% in June 2024 from a high of 9.1% in June of 2022. Its important to remember, if interest rates have increased, the price of existing bonds can generally be expected to decrease, and vice versa. 

For Q2, IFA's fixed-income benchmarks produced returns topping 1%. The IFA One-Year Fixed Income Index led with a return of 1.35% whereas the IFA Two-Year Global Fixed Income Index came in a close second place at 1.34%, and the IFA Short Term Government Index finished up 1.31%. At the same time, the IFA Five-Year Global Fixed Income Index wound up gaining 1.27% in the quarter.

IFA Index Portfolios

The second quarter illustrated an ongoing theme we've seen over longer periods — namely the value of investing in a globally diversified portfolio of stocks and bonds.

We like to encourage novices as well as experienced investors to engage in an ongoing conversation with an IFA wealth advisor regarding each person's risk capacity. Besides offering an online Risk Capacity Survey, we provide to each client a complimentary and holistic financial plan. 

Below is an overview of how several IFA Index Portfolios performed in Q2 as well as during the previous quarter. All of these returns are shown net of the maximum annual 0.90% advisory fee through June 30, 2024.

Each quarter, we monitor our recommended funds for clients. As part of that process, we've developed a rating system. For a summary of those results, please feel free to check IFA's latest Performance Monitoring Report (PMR). 

The wealth of IFA's educational materials are available for Apple iOS and Android devices via the IFA App. This free App is available to download from both the Apple App Store and the Google Play Store for Android.

Performance results for actual clients that invested in accordance with the IFA Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFA's advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower advisory fees, varying custodian fees, and/or the timing of fee deductions.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you. For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.