In what can best be described as the year of the improbable, equity markets ended the fourth quarter and 2016 in record high territories and registered strong returns across almost all equity sectors. The fact that the majority of gains were registered in the final seven weeks of the year following the election of Donald Trump is testimony to a radical change of sentiment that accompanied election results. For the quarter, the large-cap S&P 500 advanced 3.82% and finished the year up 11.96%
Benefiting from strength in the small and mid-cap market sectors, the Intelligent Index Model Portfolio net of fees advanced 7.22% for the quarter and finished the year up 18.21%. The 6.25% percentage point differential between the Intelligent Index model portfolio and the S&P 500 Index was the 3rd largest in 16 years. Returns were not a function of guessing when or if the small and mid-cap indices would come back into favor; they were a function of maintaining a disciplined investment strategy that integrates the principle of “reversion to the mean” which implies that despite years of inconsistent returns, sectors of the market eventually reflect “historical” performance. Said another way, successive years of out-performance or under-performance relative to average returns are unlikely to persist for overly extended periods of time.
Please take a moment to review our full analysis of the quarter and our thoughts looking forward: Intelligent Index Review: Fourth Quarter 2016