Quarterly Investment Update
Third Quarter 2012
Dimensional Fund Advisors Canada ULC (“DFA Canada”) is not affiliated with [insert name of Advisor]. DFA Canada is a separate and distinct company.
Market Update: A Quarter in Review
September 30, 2012
Large Cap
Small Cap
Growth
Value
Large Cap
Small Cap
Growth
Value
Emerging
+6.73%
+9.44%
+7.21%
+7.10%
+3.27%
+4.20%
+2.75%
+3.79%
+4.07%
INTERNATIONAL STOCKS
CANADIAN STOCKS
Large Cap
Small Cap
Growth
Value
Global
REITs
1-Month
T-Bills
+2.72%
+1.66%
+2.39%
+2.81%
-0.21%
+0.23%
US STOCKS
Short Term Intermediate
Bonds
Bonds
+0.71%
+1.24%
Global
Bonds
(hedged)
+0.96%
REAL ESTATE AND FIXED INCOME
Data is in Canadian dollars. Market segment (index representation) as follows: Canadian stocks: Large Cap (TSX 60), Small Cap (MSCI/Barra Canadian Small), Growth (MSCI/Barra Canadian
Growth), Value (MSCI/Barra Canadian Value); US stocks: Large Cap (S&P 500), Small Cap (Russell 2000), Growth (Russell 3000 Growth), Value (Russell 3000 Value); International stocks:
Large Cap (MSCI EAFE [net div]), Small Cap (MSCI EAFE Small (net div)), Growth (MSCI EAFE Growth [net div]), Value (MSCI EAFE Value [net div]), Emerging Markets (MSCI Emerging (net
div)); Real Estate: Global REITs (S&P Global REIT [net div]); Fixed Income: Canadian (Canadian 1-month T-bills), Short Term Bonds (DEX Short Term Bond), Intermediate Bonds (DEX
Universe Bond), Global Bonds-Hedged (Citigroup World Government Bond Index 1-5 Years [hedged to CAD]). Indexes are not available for direct investment. Index performance does not
reflect the expenses associated with the management of an actual portfolio. Past performance does not guarantee future returns.
S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright ©
Russell Investment Group 1995-2012, all rights reserved. Canadian fixed income data provided by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. Citigroup
bond indexes copyright 2012 by Citigroup.
Survey of Long-Term Performance
September 30, 2012
Annualized (%)
3 Years
5 Years
10 Years
20 Years
Since
Inception
Inception
date
8.57
3.88
-0.25
9.94
9.76
8.61
Feb 87
8.68
11.66
1.42
9.59
9.92
9.56
Jul 90
MSCI/Barra Canadian Growth
5.21
2.66
-2.30
9.19
7.89
7.19
Jan 82
MSCI/Barra Canadian Value
11.65
6.82
1.94
11.02
11.70
11.33
Jan 82
Large Cap
S&P500
22.14
10.04
0.82
2.97
7.23
10.56
Feb 51
Small Cap
Russell 2000
23.74
9.83
1.98
5.03
7.81
10.76
Jan 79
Russell 3000 Growth
21.34
11.48
2.98
3.49
6.18
9.93
Jan 79
Russell 3000 Value
22.94
8.71
-0.95
3.22
8.09
11.47
Jan 79
Large Cap
MSCI EAFE (net div.)
6.71
-0.74
-5.46
3.15
4.30
8.73
Jan 70
Small Cap
MSCI EAFE Small (net div.)
5.60
1.82
-3.20
6.05
-
4.36
Jan 93
MSCI EAFE Growth (net div.)
7.70
1.40
-4.45
2.78
2.89
8.50
Jan 75
MSCI EAFE Value (net div.)
5.62
-2.91
-6.54
3.43
5.60
11.63
Jan 75
MSCI Emerging (net div.)
9.69
2.68
-1.51
11.54
7.42
11.19
Jan 88
S&P Global REIT (net div.)
20.82
11.59
-2.08
4.51
8.25
7.50
Jul 89
Canadian 1-Month T-Bills
0.88
0.68
1.19
2.14
3.39
6.77
Jun 73
DEX Short Term Bond
2.17
3.44
4.91
4.54
6.02
8.51
Jan 80
DEX Universe Bond
5.45
6.48
6.86
6.18
7.51
9.71
Jan 80
Citigroup World Government
Bond Index 1-5 Years
2.93
2.67
3.79
3.66
5.19
7.01
Jan 85
Asset Class
Index
1 Year
Large Cap
TSX 60
Small Cap
MSCI/Barra Canadian Small
CANADIAN STOCKS
Growth
Value
US STOCKS
Growth
Value
INTERNATIONAL STOCKS
Growth
Value
Emerging Markets
REAL ESTATE
Global REITs
FIXED INCOME
Canadian Bills
Canadian Short Term Bonds
Canadian Bonds
Global Bonds (hedged)
Data is in Canadian dollars. MSCI EAFE Small index return is price only prior to January 1999 data inception. MSCI Emerging index return is gross dividends prior to January 1999 data
inception. S&P Global REIT index return is gross dividends prior to January 2001 data inception. S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2012, all rights reserved. The
S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2012, all rights reserved. Canadian fixed income data provided by
PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. Citigroup bond indexes copyright 2012 by Citigroup. Indexes are not available for direct investment. Index
performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
Value of Stock Markets around the World
January 1990 – September 2012
Weights
Number of
Countries
Number of
Stocks
Total Value
September 30, 2012
Change from
Previous Year
01/90-09/12
Average
Canada
1
345
1.62 Trillion
14.36%
-0.64%
5.84%
United States
1
2,477
15.97 Trillion
45.99%
2.70%
44.45%
Developed Markets
20
3,130
12.15 Trillion
34.99%
-1.97%
46.61%
Emerging Markets
23
2,659
4.99 Trillion
4.67%
-0.10%
3.09%
Total
45
8,611
34.73 Trillion
100.00%
Intl. Developed Markets
Maximum 67.07%
January 1990
US Stock Market
Maximum 54.85%
January 2002
Intl. Developed Markets
Minimum 34.51%
May 2012
US Stock Market
Minimum 29.89%
January 1990
Emerging Markets
Minimum 0.72%
January 1990
CAN Stock Market
Minimum 2.11%
December 1998
Emerging Markets
Maximum 15.68%
September 2010
CAN Stock Market
Maximum 5.07%
March 2011
• Global market capitalization weights are not static; they change across time.
Data is in US dollars and values are beginning of month. The proxies for the Canadian and US equity markets are based on the respective country markets from the MSCI All Country World
IMI Index. The international developed market proxy is the MSCI All Country World IMI ex USA ex Canada Index. The proxy for emerging markets is the MSCI All Country World IMI Index
(Emerging Markets). MSCI data copyright MSCI 2012, all rights reserved.
The Randomness of Quarterly Returns
September 30, 2012
Highest
Return
This table shows from top to
bottom the highest returning
asset classes each quarter over
the last 14 quarters. Each asset
class is color coded based on
the legend below.
Lowest
Return
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
4.59
24.30 21.76
6.58
3.14
2.93
14.09
9.45
5.60
3.33
5.12
8.97
11.71
5.16
7.02
1.52
19.97 11.30
3.98
2.34
0.97
12.78
8.15
3.43
2.48
1.49
6.18
10.52
2.25
4.07
0.86
18.04 10.61
3.86
1.40
0.08
12.59
4.03
2.41
1.05
0.23
3.59
8.56
0.58
3.27
0.20
15.72
9.98
2.61
1.26
-2.14 10.26
3.49
0.50
1.01
-7.92
2.09
8.43
0.23
2.60
-2.00
7.77
7.07
0.33
0.78
-3.94
7.80
3.33
0.23
0.23
-8.54
1.49
4.39
-1.16
1.24
-7.59
1.25
2.71
0.24
0.03
-5.51
3.15
0.23
-0.05
-0.56 -11.97 0.65
0.71
-5.22
0.96
-10.83 0.20
0.98
0.05
-1.08 -7.04
0.93
-0.30
-0.27
-1.68 -12.02 0.43
0.20
-5.67
0.23
-22.83 0.07
0.04
-0.16
-2.57 -9.82
0.09
-0.71
-0.78
-5.15 -15.72 0.21
-0.21
-7.02
-0.21
Canadian Stocks
US Stocks
International Developing Markets
Emerging Markets
Global REITs
The lack of a pattern indicates that picking which asset classes will be the best or
worst performers is virtually impossible.
Portfolios combining these various investments will avoid extreme returns.
1-Month CAN Treasury Bills
CAN Bonds
Global Bonds
Data is in Canadian dollars. Indexes represented as follows: Canadian stocks (S&P/TSX Composite Index), US stocks (Russell 3000 Index), International Developed Markets (MSCI EAFE
Index), Emerging Markets (MSCI Emerging Markets Index), Global REIT (S&P Global REIT Index), Canadian 1-Month T-Bills, Canadian Bonds (DEX Universe Bond), Global Bonds (Citigroup
World Government Bond Index Canada 1-5 Years). Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an
actual portfolio. Past performance is not a guarantee of future results.
S&P/TSX data provided by S&P/TSX. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright ©
Russell Investment Group 1995-2012, all rights reserved. Canadian fixed income data provided by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. Citigroup bond
indexes copyright 2012 by Citigroup.
Q4
2012
Currency
September 30, 2012
CHANGE IN FOREIGN EXCHANGE RATES (%)
FX/$CAD
Currency
$ US Dollars
€ Euro
£ Pounds
¥ Yen
UnitedStates
Q3 2012
3.94%
1.79%
0.54%
1.83%
One Year
5.64%
10.46%
2.30%
6.85%
Three Years
9.03%
24.09%
8.16%
-5.08%
IMPACT OF CURRENCY FLUCTUATIONS
Annual Returns in CAD and Local Currency
Three-Year Annualized Returns in CAD and Local Currency
CAD
Local Currency
Data is in Canadian dollars. The market for the United States, International Developed Markets, and Emerging Markets is defined as: Russell 3000 Index, MSCI EAFE Index, and MSCI Emerging
Markets Index, respectively. The S&P data are provided by Standard & Poor's Index Services Group. Russell data copyright © Russell Investment Group 1995-2012, all rights reserved. MSCI data
copyright MSCI 2012, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. FX Rates courtesy of Federal Reserve of New York.
MSCI Country Returns in
Canadian Dollars and Local Currency
September 30, 2012
Third Quarter 2012 RETURNS
ONE YEAR RETURNS IN CAD AND LOCAL CURRENCY
Return in
CAD
Return
in Local
Currency
Impact of
Currency
Return in
CAD
Impact of
Currency
1. Egypt
22.60%
27.82%
-5.23%
1. Egypt
46.27%
58.32%
-12.05%
2. Greece
16.92%
19.49%
-2.58%
2. Thailand
35.35%
41.94%
-6.59%
23.04%
30.31%
-7.27%
8.38%
8.38%
0.00%
.
.
.
21. Canada
UnitedStates
Return
in Local
Currency
UnitedStates
7.19%
7.19%
0.00%
13. United States
.
.
.
.
.
.
37. Canada
41. United Sates
2.56%
6.26%
-3.70%
.
.
.
44. Japan
-4.11%
-3.13%
-0.98%
44. Greece
-22.65%
-14.57%
-8.08%
45. Morocco
-7.02%
-4.78%
-2.24%
45. Morocoo
-24.89%
-17.81%
-7.08%
MSCI data copyright MSCI 2012, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an
actual portfolio. Past performance is not a guarantee of future results.
MSCI Country Returns
September 30, 2012
COUNTRY RANKINGS–TEN-YEAR ANNUALIZED RETURNS
Canada
United States
UnitedStates
Percent Return
Data in Canadian dollars gross of fees. MSCI data copyright MSCI 2012, all rights reserved. Indexes are not available for direct investment. Index performance does not reflect the expenses
associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
Bond Returns
September 30, 2012
Return (%)
Q3 2012
One
Year
Three Years
Annualized
Canadian 1-Month T-Bills
0.23%
0.88%
0.68%
DEX Short-Term Bond Index
0.71%
2.17%
3.44%
DEX Mid-Term Bond Index
1.39%
6.27%
7.50%
DEX Long-Term Bond Index
1.91%
10.24%
11.26%
DEX Universe Bond Index
1.24%
5.45%
6.48%
Citigroup World Government Bond Index
0.96%
2.93%
2.67%
Index
(1-5 years hedged)
CAN Treasury Yield Curve
Data is in Canadian dollars. Canadian fixed income data provided by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. Data provided by Citibank. Treasury yield
data provided by Bank Of Canada; copyright © 1995-2012, Bank of Canada.
Growth of Wealth
September 30, 2012
ONE YEAR
$1.22
$1.21
$1.10
$1.09
$1.09
$1.07
$1.05
$1.01
In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is DEX Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is
MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P
Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills,
30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided
by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor’s
Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the
management of an actual portfolio. Past performance is not a guarantee of future results.
Growth of Wealth
September 30, 2012
THREE YEARS
$1.39
$1.33
$1.21
$1.17
$1.17
$1.08
$1.02
$0.98
In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is DEX Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is
MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P
Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills,
30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided
by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor’s
Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the
management of an actual portfolio. Past performance is not a guarantee of future results.
Growth of Wealth
September 30, 2012
FIVE YEARS
$1.39
$1.09
$1.06
$1.04
$1.01
$0.93
$0.90
$0.76
In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is DEX Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is
MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P
Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills,
30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided
by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor’s
Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the
management of an actual portfolio. Past performance is not a guarantee of future results.
Growth of Wealth
September 30, 2012
TEN YEARS
$2.98
$2.55
$1.82
$1.81
$1.55
$1.36
$1.34
$1.24
In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is DEX Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is
MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P
Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills,
30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided
by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor’s
Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the
management of an actual portfolio. Past performance is not a guarantee of future results.
Growth of Wealth
September 30, 2012
TWENTY YEARS
$5.79
$4.88
$4.25
$4.19
$4.14
$4.04
$2.32
$1.95
In Canadian dollars. T-Bills is Canadian 1-Month T-Bills, Canadian Bonds is DEX Universe Bond Index, International Stocks is MSCI EAFE Index (net div.), Emerging Markets Stocks is
MSCI Emerging Markets Index (gross div.) from 01/1988 to 12/1998 and MSCI Emerging Markets Index (net div.) from 01/1999, US Stocks is S&P 500 Index, Global Real Estate is S&P
Global REIT Index (gross div.) from 07/1989 to 12/2000 and S&P Global REIT (net div.) from 01/2001 and Canadian Stocks is S&P/TSX Composite Index. Balanced Portfolio is 10% T-Bills,
30% Canadian Bonds, 20% Canadian Stocks, 15% US Stocks, 15% International Stocks, 5% Emerging Markets Stocks and 5% Global Real Estate. Canadian fixed income data provided
by PC-Bond, a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2012, all rights reserved. The S&P data are provided by Standard & Poor’s
Index Services Group. S&P/TSX data provided by S&P/TSX. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the
management of an actual portfolio. Past performance is not a guarantee of future results.
Quarterly Topic
Knightmare on Wall Street
QUESTION:
Which of the following statements
applies to this summer’s stock
market behavior?
Computer errors at a major
trading firm generated millions of
faulty trades, causing dramatic and
puzzling price swings in dozens of
stocks.
A)
B) A New
York Times columnist
fumed that “Wall Street has
created its own Frankenstein.
The machines are now
in charge.”
C) The
S&P 500 Index rose
9.86% for the year through
the end of August.
ANSWER:
All of the above.
The July 31 trading session was
marked by unusual activity in
148 stocks listed on the New York
Stock Exchange, many of which
swung sharply in the first hour of
trading due to an apparent error
in a newly installed software
program developed by seventeenyear-old Knight Capital Group Inc.,
one of the country's largest
market-making and trading firms.
For some, the incident was
an unwelcome reminder of the
so-called "flash crash" on May 6,
2010, which saw the Dow Jones
Industrial Average plunge over
700 points in fifteen minutes.
Wall Street Journal columnist
Jason Zweig sounded out a
number of individual investors
for their thoughts on the market
gyrations and got an earful. A
New York lawyer observed that
the investors he talks to are
convinced "the game is stacked
against them" and that earning
a pittance in safe fixed income
investments was preferable to
"losing it all on a roulette-wheel
stock market."
Incidents such as the "flash crash"
are often cited as a contributing
factor to investor skepticism of
equity investing. One can
sympathize with investors who
fear that the investment industry
machinery somehow places them
at a disadvantage, but we think
such concerns should be placed
in a proper context. We live in
a complicated world, and it's
unrealistic to expect power plants,
airliners, or stock exchanges to
work perfectly 100% of the time.
The lights go out, flights are
canceled on short notice, and
computers freeze up just when
we need to print that important
document. These malfunctions
serve to remind us that technology
is a mixed blessing, but few of us
would prefer a permanent return
to the era of spinning wheels
and candlelight.
Some of us are old enough to
remember the commission
schedule at NYSE-member firms
in the days before negotiated
commission rates and high-speed
trading algorithms. A 100-share
order of IBM or Procter & Gamble
used to cost $80.73. These days,
a customer with a meaningful
checking account balance can
execute one hundred trades a
year for free. More traders and
more trading paves the way to
greater liquidity and lower
transaction costs.
We do wonder how many
investors were even aware of
the trading gyrations as they
were taking place. We suspect
those expressing the greatest
alarm were accustomed to
watching market developments
minute by minute.
In this regard, we cannot improve
on Jason Zweig's observation, so
we'll quote him directly: "It's harder
than ever for long-term investors
to ignore the trading madness of
Mr. Market. But ignoring it remains
the very essence of what it means
to be an investor."
Adapted from “Knightmare on Wall Street” by Weston Wellington, Down to the Wire column on Dimensional’s website, August 2012. S&P 500 Index return in CAD. This information is provided for
educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. Dimensional Fund Advisors LP is an investment advisor registered with the
Securities and Exchange Commission.
14