e S&P 500 Index logged a 1.38% total return. e returns
across US indices were mixed, but overall the broad US
market, as measured by the Russell 3000, gained 0.48%—
its lowest return since the 2008 market downturn. e
Nasdaq Composite Index returned 6.96%. Performance
among non-US markets was mostly negative: e MSCI
World ex USA Index logged a 3.04% total return and
the MSCI Emerging Markets Index a −14.92% return (net
dividends, in USD). e US dollar’s strong performance
against major currencies resulted in lower returns for US
investors in various markets. For example, the MSCI All
Country World Index returned 1.27% in local currency
but −2.36% in USD (net dividends).
In December, the Federal Reserve announced that it would
raise its target range for the federal funds rate from 0.25%
to 0.50%, ending a seven-year period of close-to-zero rates.
As of year-end, the yield on the benchmark 10-year Treasury
note stood at 2.27%, only slightly up from 2.17% in 2014.
e Barclays US Government Bond Index returned 0.86%
and Barclays US Intermediate Corporate Index returned
1.08%. Global government bonds had slightly positive
returns with the Citigroup World Government Bond 1–5
Year Index (USD hedged) returning 1.00%. Global corporate
bonds also had positive returns, with the Barclays Global
Aggregate Corporate Bond Index 1–5 Years (hedged to USD)
returning 1.21%.
January 2016
2015 Review:
Economy & Markets
The US economy and broad market showed modest gains during the year, although investor
discipline was tested by news of a global economic slowdown, rising market volatility in China
and emerging markets, falling oil and commodities prices, and higher US interest rates.
OPENCIRCLE WEALTH PARTNERS
2
e chart above highlights some of the year’s prominent
headlines in context of broad US market performance,
measured by the Russell 3000 Index. ese headlines are
not oered to explain market returns. Instead, they serve
as a reminder that investors should view daily events from
a long-term perspective and avoid making investment
decisions based solely on the news.
e chart below oers a snapshot of non-US stock market
performance (developed and emerging markets), measured
by the MSCI All Country World ex USA Index (in USD,
net dividends). e headlines should not be viewed as
determinants of the markets direction but as examples
of events that may have tested investor discipline during
the year.
US Stock Market Performance
Russell 3000 Index with selected headlines from 2015
5,
400
5,8
00
6,0
00
6
,200
6,400
5,6
00
Annualized returns
as of December 31, 2015
1 Year 0.48%
3 Years 14.74%
5 Years 12.18%
10 Years 7.35%
US Stock Market Performance
Russell 3000 Index with selected headlines from 2015
Source: Russell Investment Group.
Past performance is not a guarantee of future results. In US dollars. Index is not available for direct investment. Performance does not reflect the expenses associated with management of an actual portfolio.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US Job Growth
Strongest Since 1999”
US, Cuba Open Talks
on Re-Establishing Ties”
“Inflation Well Short
of Fed’s 2% Target”
“Strong Dollar
Hammers Profits at
US Multinationals”
“US Jobless
Claims Fall
to Lowest Level
in 15 Years”
“Home Building
Surges to Best
Pace since 2007”
“Economists See Bright
Consumer Outlook”
“US Government Bonds
Rise for Fifth Straight
Quarterly Gain”
“Nasdaq Composite,
S&P 500 Close at New Highs”
“Fed Flags Slow Pace
for Rate Hikes”
“US Consumer
Prices Rise for
Sixth Straight
Month”
“US 10-Year Note
Closes Below 2%”
Consumers
Take on More
Debt, Signaling
Confidence
in Economy”
“US Household
Wealth Hits Record”
“US Trade Gap
Widens Sharply
on Strong Dollar”
“Spot Gold Hits
Six-Year Low”
“Worst Year for S&P, Dow since 2008”
“Oil Prices Skid to Seven-Year Lows”
Junk Bond
Selloff Intensifies”
“US Growth Cools
in Third Quarter”
“US Second
Quarter
GDP Grows 3.9%”
“US Economy
Contracted 0.7%
in First Quarter”
“Existing Home Sales Surge,
Prices Hit Record”
Source: Russell Investment Group.
Past performance is not a guarantee of future results. In US dollars. Index is not available for direct investment. Performance does not reect the expenses associated
with management of an actual portfolio.
Non-US Stock Market Performance
MSCI All Country World Index ex USA with selected headlines from 2015
“Global Worries Reach Asia”
“Global Government Bond
Yields Hit New Lows”
“Swiss Move Roils Global Markets”
Japan Shares Hit
Fresh 15-Year High”
“Euro’s Tumble Brings It Closer
to Parity with US Dollar”
“China’s Economy
Hits Slowest Growth
since 2009”
“European Stocks
Set New Record”
“Eurozone GDP
Growth Accelerates,
Boosted by
France, Italy”
“Eurozone Finance Ministers
Reject Greek Request for
One-Month Bailout Extension”
“European Markets to
Finish 2015 among
World’s Top Performers”
“China Accelerates
Efforts to Stem Selloff”
“Iran, World Powers
Reach Nuclear Deal”
“Eurozone Economic
Growth Slows”
“World Markets Plunge
as China Stocks Crash”
“Global Markets to Log
Worst Quarter since 2011”
“IMF Downgrades
Global Economic
Outlook Again”
“Eurozone Economy
Slows as Exports Weaken”
“Global Dealmaking
Breaks 2007 Record”
Japan’s Economy
Contracts Again”
Japan Stocks Rise over
9% to End Year on a High”
220
210
200
190
180
170
160
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Non-US Stock Market Performance
MSCI All Country World Index ex USA with selected headlines from 2015
Source: MSCI.
Past performance is not a guarantee of future results. In US dollars. Index is not available for direct investment. Performance does not reflect the expenses associated with management of an actual portfolio.
Annualized returns
as of December 31, 2015
1 Year −5.66%
3 Years 1.50%
5 Years 1.06%
10 Years 2.92%
Source: MSCI.
Past performance is not a guarantee of future results. In US dollars, net dividends. Index is not available for direct investment. Performance does not reect the expenses
associated with management of an actual portfolio.
spending sparked by lower energy prices and the European
Central Banks (ECB) quantitative easing eorts. A decline
in the euros value boosted exports and contributed to an
improved current account surplus (3.7% of GDP) in 2015.
Japans economy showed signs of improvement early in 2015
by posting a 3.9% GDP growth rate in Q1. Growth in Q2
reversed with a –0.7% rate before rebounding to 1% in Q3.
China, the worlds second largest economy, showed signs of
a slowdown during 2015, with Q1 and Q2 growth reported
at 7% and Q3 growth falling to 6.9%. e Chinese government
later revised its growth target to 6.5%, reecting the weakest
growth in 25 years.
Slower growth extended to other emerging markets. In Q4,
the International Monetary Fund (IMF) cut its 2015 growth
estimate for emerging markets to 4%, which marked the h
consecutive year of declining growth.
Oil Market Decline
e world oil market continued its dramatic slide. Aer
falling more than 50% in 2014, oil declined another 30%
to end 2015 at $37.04 a barrel for West Texas intermediate
crude, marking the largest two-year price drop on record.
Factors aecting the price decline include excess supply
spurred in part by higher production in North America,
Middle East, and Russia, and slack demand due to slowing
global growth, especially in the emerging markets. e
steep price decline brought uncertainty to nancial markets
and industry sectors as rms curtailed spending and
canceled projects, and oil-exporting countries collected
lower tax revenues and struggled with the eects of a
weaker currency.
Diverging Paths for Central Banks
e divergence in actions by the major central banks in
2015 marked the rst time since the euros launch that the
Fed, ECB, and Bank of England have set course on dierent
monetary paths as a result of diverging economies. In the
late 1990s, the booming global economy led the central
banks to apply rate hikes, while the 2001–2003 market
decline brought similarly timed rate cuts.
In September, the Fed postponed raising interest rates,
citing concerns with the economy, ination, and worldwide
market volatility. e central bank raised its benchmark
OPENCIRCLE WEALTH PARTNERS
GLOBAL BACKDROP
US Economy
e US economy grew modestly during 2015. Gross
domestic product (GDP) increased only 0.6% in Q1 before
improving to 3.9% in Q2 (year over year). Growth slowed
to 2.0% in Q3. Q4 GDP growth was forecasted to decline
to 1.0% and GDP growth for all of 2015 to average 2.5%.
Positive economic signs in 2015 included lower
unemployment, which fell from 5.7% in January to 5.0%
in the last three months of the year—the lowest rate since
2008. Overall, the economy added 2.7 million jobs, capping
the second-best annual gain since 1999. December wages
were up 2.5% (year over year), which marked one of the
best gains of the current expansion. Low oil prices helped
keep overall ination low. e all items consumer price
index (CPI) rose 0.7% in 2015, although core CPI, which
excludes food and energy, increased 2.1%. US housing
activity remained solid with price growth, as measured
by the S&P/Case-Shiller Home Price Index, rising 5.2%
(year over year) through October. New home sales
increased 14.5% through November. Consumer condence
also improved, with the University of Michigans Index of
Consumer Sentiment averaging 92.9 in 2015—the highest
since 2004. Consumer spending, which accounts for more
than two-thirds of US economic activity, grew 3.0% in Q3.
Negative economic indicators included declining US factory
activity. In December, the Institute for Supply Managements
(ISM) index fell to 48.2 from 48.6 in November, which was
the weakest reading since the nal month of the recession
in June 2009. (Readings below 50 indicate contraction.)
Corporate prots declined in Q1 and Q3 by 5.8% and
1.6%, respectively.
Global Economy
In 2015, economic growth was the weakest since the
nancial crisis. In December, the Organization for
Economic Cooperation and Development (OECD)
revised its 2015 world growth estimate downward to
2.9%—well below the historical average of 3.6% per year.
Eurozone GDP growth increased 0.5% in Q1, which was the
strongest quarterly rate since its regional recovery began in
early 2013. But the pace slowed to 0.4% in Q2 and to 0.3%
in Q3. e slowdown came in spite of improved consumer
3
4OPENCIRCLE WEALTH PARTNERS
rate by a quarter point in December—its rst rate hike since
2006—and stated that it would continue on a gradual course
of monetary tightening as long as ination and economic
growth allowed. e impact on the US nancial markets
was negligible, as rates had already begun to increase in
anticipation of the move. Even as the US central bank began
monetary tightening, most banking authorities across the
globe were taking measures to ease their countrys monetary
policy in response to signs of an economic slowdown. e
ECB implemented a major stimulus program throughout
the year, and in December announced new quantitative
easing measures along with Japan.
2015 INVESTMENT OVERVIEW
Market Summary
In the US equity markets, most major indices logged
negative performance, despite a strong rebound during
Q4. For the year, the S&P 500 Index returned 1.38%;
the Russell 3000 Index 0.48%; and the Russell 2000
Index −4.41%.
US market volatility, measured by the Chicago Board
Options Exchange Market Volatility Index (VIX), declined
steadily for the rst half of 2015, but jumped to its highest
level in six years in late August, following the US market
decline. During Q4, the index dropped then rose again to
close slightly higher for the year.
Non-US developed stock markets experienced mixed
performance across almost all major indices (returns in
USD, net dividends). e MSCI World ex USA Index,
a benchmark for large cap stocks in developed markets
outside the US, returned −3.04%. Small cap and value
stock returns were mixed: e MSCI World ex USA Small
Cap Index returned 5.46% and MSCI World ex USA Value
Index returned −7.68%. e MSCI World ex USA Growth
Index was positive at 1.65%. Emerging markets were among
the worst global performers: e MSCI Emerging Markets
Index returned −14.92%; the small cap subindex returned
−6.85%; the value subindex returned −18.57%.
Among the equity markets tracked by MSCI, nearly
half of the countries in the non-US developed markets
index had negative total returns (in USD) and the range
of returns was broad. e top three return countries
were Denmark (23.43%), Ireland (16.49%), and Belgium
Major World Indices
As of December 31, 2015
Index
Three
Months
One
Year
Three
Years*
US Equity Returns (%)
Russell 3000 Index 6.27 0.48 14.74
Russell 2500 Index 3.28 −2.90 12.46
Russell 2000 Index 3.59 −4.41 11.65
Russell 2000 Value Index 2.88 −7.47 9.06
Russell 2000 Growth Index 4.32 −1.38 14.28
Russell 1000 Index 6.50 0.92 15.01
Russell 1000 Value Index 5.64 −3.83 13.08
Russell 1000 Growth Index 7.32 5.67 16.83
S&P 500 Index 7.04 1.38 15.13
Non-US Equity Returns (net div.) (%)
MSCI World ex USA Small Cap 5.82 5.46 7.82
MSCI World ex USA 3.91 −3.04 3.93
MSCI World ex USA Value 2.17 −7.68 1.99
MSCI World ex USA Growth 5.61 1.65 5.83
MSCI Emerging Markets 0.66 −14.92 −6.76
MSCI Emerging Markets
Small Cap
3.27 −6.85 −1.67
MSCI Emerging Markets Value −1.45 −18.57 −9.50
Fixed Income Returns (%)
BofA Merrill Lynch
Three-Month US Treasury Bill
0.03 0.05 0.05
BofA Merrill Lynch 1-Year
US Treasury Note
−0.17 0.15 0.20
Citigroup World Government Bond
Index 1–3 Years (hedged)
−0.05 0.71 0.81
Barclays US Government Bond −0.91 0.86 1.01
BofA Merrill Lynch 1–5 Year
US Treasury and Agency
−0.65 0.97 0.68
Citigroup World Government Bond
Index 1–5 Years (hedged)
−0.08 1.00 1.17
Barclays US TIPS −0.64 −1.44 −2.27
Other Returns (%)
Dow Jones US Select REIT 7.54 4.48 11.76
S&P Global ex US REIT (net div.) 1.86 −3.54 3.08
Bloomberg Commodity Total Return −10.52 −24.66 −17.29
*Annualized
Past performance is not a guarantee of future results.
In US dollars. Indices are not available for direct investment. Performance does
not reect the expenses associated with management of an actual portfolio.
OPENCIRCLE WEALTH PARTNERS
(12.10%). Countries with the lowest returns were Canada
(−24.16%), Singapore (−17.71%), and Spain (−15.64%).
In emerging markets, 21 of 23 countries tracked by MSCI
logged negative total returns (in USD) and the dispersion
of returns was broader than in the developed countries.
Hungary (36.31%), Russia (4.21%), and India (−6.12%)
were the top-performing countries in the index. e
lowest returns in the index came from Greece (−61.33%),
Colombia (−41.80%), and Brazil (−41.37%).
Returns of major xed income indices were slightly positive.
One-year US Treasury notes returned 0.15%, Barclays
US Government US Bond Index 0.86%, Citigroup World
Government Bond Index (1–5 years, USD hedged) 1.00%,
and Barclays US TIPS index returned −1.44%. e Barclays
Global Aggregate Corporate Bond Index 1–5 Years (hedged
to USD) returned 1.21%.
US and global real estate securities had mixed performance:
e Dow Jones US Select REIT Index returned 4.48%,
and the S&P Global ex US REIT Index returned −3.54%.
Commodities were negative for the h year in a row, with
the Bloomberg Commodity Total Return Index returning
−24.66%. Among the composite indices, petroleum
returned −39.42% and industrial metals −26.88%. Among
the single commodity indices, Brent crude (−45.57%) and
West Texas intermediate crude (−44.35%) were the worst
performers. Natural gas returned −39.95%. Gold was down
for the third year in a row at −10.88%; silver prices returned
−12.72%. Cotton was the only commodity in the index to
post a positive return (2.97%).
Currency Impact
e US dollar rose against most major currencies,
including the euro, pound, and yen. e dollars strength
had a negative impact on returns for US investors with
holdings in unhedged non-US assets. For example, in
2015, the dollars rise relative to the euro hurt the returns
of US investors in European markets. e MSCI Europe
Index (net dividends) returned 8.22% in euro but −2.84%
in US dollars. is was the case in other regions where the
dollar outperformed local currencies. Examples: e MSCI
United Kingdom Index (net dividends) returned −2.21%
in pounds and −7.56% in USD. e MSCI Australia Index
returned 1.29% in Australian dollars but −9.95% in USD.
5
Major World Indices Ranked by One-Year Performance (%)
As of December 31, 2015
Russell 1000 Growth Index 5.67
MSCI World ex USA Small Cap (net div.) 5.46
Dow Jones US Select REIT 4.48
MSCI World ex USA Growth (net div.) 1.65
S&P 500 1.38
Citigroup World Government Bond
1–5 Years (hedged to USD)
1.00
BofA Merrill Lynch
1–5 Year US Treasury and Agency
0.97
Russell 1000 0.92
Barclays US Government Bond 0.86
Citigroup World Government Bond
1–3 Years (hedged to USD)
0.71
Russell 3000 0.48
BofA Merrill Lynch
1-Year US Treasury Note Index
0.15
BofA Merrill Lynch
Three-Month US Treasury Bill
0.05
Russell 2000 Growth −1.38
Barclays US TIPS −1.44
MSCI All Country World (net div.) −2.36
Russell 2500 −2.90
MSCI World ex USA (net div.) −3.04
S&P Global ex US REIT (net div.) −3.54
Russell 1000 Value −3.83
Russell 2000 −4.41
MSCI Emerging Markets Small Cap
(net div.)
−6.85
Russell 2000 Value −7.47
MSCI World ex USA Value (net div.) −7.68
MSCI Emerging Markets (net div.) −14.92
MSCI Emerging Markets Value (net div.) −18.57
Bloomberg Commodity Total Return −24.66
Past performance is not a guarantee of future results.
In US dollars. Indices are not available for direct investment. Performance does
not reect the expenses associated with management of an actual portfolio.
−20−25 −15 −5 0 5−10 10
6OPENCIRCLE WEALTH PARTNERS
Performance of Size and Value Premiums
Based on the respective total returns of the Russell
indices
1
within the size dimension, US small cap stocks
underperformed US large cap stocks by −5.33% (−4.41%
vs. 0.92%). Within the relative price dimension, US value
underperformed US growth by −9.22% (−4.13% vs. 5.09%).
Among US small cap stocks, small value underperformed
small growth by −6.09% (−7.47% vs. −1.38%); among US
large cap stocks, large value underperformed large growth
by −9.49% (−3.83% vs. 5.67%).
As in most years, diverging performance of various
subindices in 2015 underscores the fact that the premium
within a particular dimension (e.g., size or value) does
not always move in the same direction across the global
markets. For example, although the size premium was
negative in the US, it was positive in both the developed
non-US and emerging markets for the year. e MSCI
World ex USA Small Cap Index outperformed the MSCI
World ex USA Index by 8.50% (all returns in USD, net
dividends). e MSCI Emerging Markets Small Cap Index
outperformed the MSCI Emerging Markets Index by 8.07%.
Value premiums outside the US were generally negative.
e MSCI World ex USA Value Index underperformed
its growth counterpart by −9.33%; the MSCI Emerging
Markets Value Index underperformed the MSCI Emerging
Markets Growth Index by −7.24%.
Annual underperformance of the size and value premiums
is not unusual from a historical standpoint. Although
small cap and value stocks have oered higher expected
long-term returns relative to their large cap and growth
counterparts, these return premiums do not appear
each year.
1
For example, since 1979, US small caps have
outperformed large caps in 19 of the 37 calendar years—
or 51% of the time. Results are similar for the relative price
dimension. Since 1979, US value has outperformed growth
in 20 of 37 calendar years—or 54% of the time. Small cap
value has outperformed small cap growth in 57% of the
calendar years.
History also has produced multiyear periods in which
US small cap and value stocks did not outperform large
caps and growth. e most recent example is three-year
underperformance of small cap value vs. small cap growth
(2013–2015). Small value has also underperformed in three
straight years (2009–2011 and 1989–1991). Other multiyear
examples include small caps underperforming large caps
(1984–1987 and 1994–1998) and value underperforming
growth (1989–1991 and 2009–2011). Yet, despite even
extended negative-premium periods, small cap and value
stocks have outperformed their counterparts over time,
and when the premiums reversed, they oen did so
strongly and for multiple years.
1. US small cap is represented by the Russell 2000 Index; US large cap is the Russell 1000 Index; US value (marketwide) is the Russell 3000 Value
Index; and US growth (marketwide) is the Russell 3000 Growth Index. US large value is the Russell 1000 Value Index; US large growth is the
Russell 1000 Growth Index. Russell data © Russell Investment Group 1995–2016, all rights reserved.