Equity markets bounced back over the fourth quarter, finishing on a strong note, but leaving mixed results for the year. For the quarter, U.S. equity markets posted a strong positive 12.0% return (DJW 5000 Index), while the International equity markets posted a smaller, but still positive, 2.9% return (MSCI EAFE). International markets continued to struggle amid underlying debt issues faced by many countries located in the Euro-zone. These issues have also led to greater volatility in the U.S markets, specifically in the financial sector as Euro-zone debt held by U.S. institutions became a concern. U.S fixed income posted mild gains over the quarter, returning a positive 1.1% (Barclays Aggregate Index). Yields remained relatively unchanged over the quarter, still at historically low levels, with the 10-year Treasury finishing at 1.9% for the quarter and year.
Fixed income posted some of the best returns for the year, in large part due to the significant downward move in rates over the third quarter. For 2011, U.S. fixed income posted a positive 7.8% return (Barclays Aggregate Index). Equity markets posted mixed results for the year against a backdrop of increased volatility. Across three widely referenced equity market indices, one was up (Dow Jones Industrial Average), another flat (S&P 500) and another down (NASDAQ) for the year. The U.S. equity market as a whole posted a return of only 1.0% for the year (DJW 5000 Index). Generally speaking, large U.S. value oriented companies produced the best returns for the year. International equities on the other hand were mostly in the negative, plagued by Euro-zone debt issues. The overall International equity market posted a negative 14.8% return for the year (MSCI EAFE).
Volatility was an important theme over 2011, as events around the Middle East uprisings, the Japan earthquake/tsunami, the S&P downgrade of U.S. debt, and the debt issues in the Euro-zone tested markets. While there will always be near term challenges, it is long term structural issues like these that create the most uncertainty. In fact, these issues have now spread to the U.S., as concerns about our own debt levels and long-term solutions to address have surfaced. Finding answers and solutions to these long-term issues will help remove this cloud of uncertainty, but until then, they will remain at the forefront as we move into 2012.
~Jeff Elvander, CFA, Chief Investment Officer
