U.S. Investing in Review (Sept 2022)

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In 2020, our investment committee decided to add two new sectors to our U.S. Stock asset class allocations. We added the sector of Consumer Staples and the subsector of Biotechnology. We came to this decision after generating several hundred efficient frontier graphs of various United States classifications, industries, and sectors over a variety of time periods.

As we say in our article on the topic, we anticipated Consumer Staples to have a lower expected return but a larger risk-adjusted return and we expected Biotechnology to have very volatile returns with lower correlations to the other sectors. Again, we’ve seen this play out in recent returns.

Biotechnology has shown a very low correlation to Technology and Healthcare (under 0.6) and an even lower correlation to Consumer Staples (under 0.3). This low correlation means that it has the potential for a high rebalancing bonus. It also means it has the potential to perform very differently from the other three sectors, as it did this past year.

After having won the fourth quarter of 2020, Biotechnology was down each quarter of 2021 and most of 2022. This quarter ending September 30, 2022, Biotechnology finally posted a positive return of +6.80%.

Q3 2022 Q2 2022 Q1 2022 Q4 2021
U.S. Biotechnology 6.80% -17.37% -19.72% -10.94%
U.S. Consumer Staples -6.71% -4.77% -1.61% 12.24%
U.S. Healthcare -4.67% -7.12% -4.25% 8.13%
U.S. Technology -5.65% -21.45% -8.95% 14.39%


Diversification dampens both the highs and the lows. You always have an investment to complain about and an investment that is your darling. If you cut the investment you are upset with out of your portfolio, then you will no longer have its diversification benefits and may be out of luck when your darling goes down.

At the end of 2021, it was because of Biotechnology that our static allocation underperformed our benchmark by -1.23%. This quarter, it was Biotechnology which pulled up the returns of our static allocation.

In this analysis, I have used the actual products we are investing in rebalanced monthly to our static asset allocation targets with returns ending September 30, 2022. This analysis does not reflect our dynamic tilt, which we implement in client portfolios.

For a benchmark, I have used Vanguard Total Stock Market ETF (VTI), which tries to capture a cap-weight of the entire investable U.S. equity market by tracking the performance of the CRSP U.S. Total Market Index.

This quarter, we saw that in 1-year returns ending September 30, 2022 our U.S. Stock Strategy had a +4.11% advantage over VTI.

Ticker 3-Month 6-Month 9-Month 1-Year
Vanguard Total Stock Market ETF (Market Return) VTI -4.44% -20.52% -24.81% -17.96%
Rebalanced U.S. Stock Strategy -4.59% -17.69% -21.40% -13.86%
U.S. Biotechnology XBI 6.80% -11.75% -29.15% -36.90%
U.S. Consumer Staples VDC -6.71% -11.16% -12.59% -1.89%
U.S. Healthcare VHT -4.67% -11.45% -15.21% -8.32%
U.S. Technology VGT -5.65% -25.89% -32.52% -22.82%
U.S. Mid Cap Value VOE -5.46% -17.81% -17.79% -10.97%
U.S. Large Cap VOO -4.95% -20.26% -23.91% -15.48%
U.S. Small Cap Value VBR -3.78% -17.67% -18.72% -13.55%


As always, our Investment Committee will continue to monitor our portfolio targets and make adjustments when we believe we have the data to justify the changes.

Photo of Seattle by Luca Micheli on Unsplash

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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.