Copyright 2020 Tom Madell, PhD, Publisher
Oct. 2020. Published Oct. 4, 2020.

The Coronavirus Has Decimated the Returns of Stocks Far More Than Bonds

by Tom Madell

Aside from the truly awful consequences of the Coronavirus in terms of lives lost and the disruptions to our lives, there has been a big toll on those who use mutual funds to try to create a path to their financial well-being. But fortunately, for those investors who did not panic and stuck to their guns, the financial course appears to have begun the process of righting itself. While this almost always is what happens following chaos and uncertainty, the process may be a slow one before life, in all respects, begins to return to a more normal track.

For investors, two important trends summarize how the investment environment has changed as explained below.

The Virus Appears to Have Changed the Trajectory of Stocks and Bonds

You may be surprised to realize that, in spite of the fact that we currently are in a super-strong, recovering bull market after a deep Covid-induced bear market, all is not nearly close to being back to normal. Yes, the S&P 500 and especially the NASDAQ indices, are now up for the year with the Dow Jones Industrial Average down just a few percent in spite of the pandemic. But does this mean that the negative impact of coronavirus on your funds has been largely overcome? For typical fund investors, not by a longshot.

Most investors probably hold a diversified group of different funds drawn from different fund categories. Look at the following category averages for different types of funds, followed by the performances of two "benchmark" type of index funds, one for international stocks and the other for bonds. Note that the Covid-induced bear market began on Feb 20. So if you held on to your positions from that date right up to now, let's see how you have done compared to how you would have done holding those same positions during the immediately preceding 12 months using fund category averages as our measures of performance.

Fund Category
Pre-Bear Market Onset
1 Yr. Return
Return (Not Annualized)
Return Difference Between
Pre- and Post-Covid
 Large Blend  23.16% 0.99% -22.17%
 Large Growth 31.23 13.38 -17.85
 Large Value 10.07 -14.56 -24.63

 Mid-Cap Blend  15.71 -7.71 -23.42
 Mid-Cap Growth 24.77 12.41 -12.36
 Mid-Cap Value 6.46 -21.46 -27.92

 Small-Cap Blend  9.55 -17.22 -26.77
 Small-Cap Growth 12.75 4.65 -8.10
 Small-Cap Value -1.33 -24.97 -23.64

-Pre-Bear Market Onset 1 Yr. Return
from 2/19/19 - 2/18/20
-Subsequent Return from 2/19/20 - 9/30/20

Pre-Bear Market Onset
1 Yr. Return
Return (Not Annualized)
Return Difference Between
Pre- and Post-Covid
 Vanguard Total Intl.
Stock Index Fund (VTIAX)
10.65% -4.29% -14.94%

Pre-Bear Market Onset
1 Yr. Return
Return (Not Annualized)
Return Difference Between
Pre- and Post-Covid
 Vanguard Total Bond
Mkt. Fund (VBTLX)
9.66% 4.75% -4.91%

Prior to the onset of the Covid bear market, 10 out of 11 fund categories had just completed a positive prior 12 months. However, after the start of the bear market, only the three categories of growth stocks as well as bonds have been able to provide positive returns above 1%. The remaining 7 fund categories have averaged a return of -12.75%.

The three categories of value funds, small, mid, and large cap, have done the worst. The "plain vanilla" bond fund, VBLTX, has served its investors well, far outperforming the seven underperforming stock funds.

As the tables show, each of the 11 categories hasn't returned the level of performance it had prior to the Covid-induced bear market. The difference between the pre-and post-virus returns have, for the most part been huge, as shown in the last column with an average drop-off in performance of -18.79%. It will take a massive improvement for all of these still lagging categories over the next 5 mos. or so to equal the 1 yr. returns prior to the onset of the now defunct bear market. While this remains a possibility, the 10 stock funds would have to increase, on average, more than 4% per month from where they sat at the start of the bear market to equal the returns prior to the onset of the covid-bear market, while the Vanguard bond market fund would have to average a return of about 1% per month.

In Reaction to Covid, Fed-Controlled Interest Rates Have Fallen to Zero

In the July Newsletter published at the beginning of July, I recommended that investors should shun cash and instead invest in bond funds for the majority of their portfolio that they choose not to invest in stocks, that is, instead of cash.

While it is reasonable to think that if bonds now pay only scant dividends, their returns will be paltry as well. So let's now look at returns for bonds since the beginning of July.

The table below shows how some popular bond funds, the same ones shown in the July Newsletter, have done following my recommendation to go into bonds instead of cash. For comparison, I have also shown how the typical money market fund has done over the same 3 month period.

Fund (Symbol) 3 Mo. Return Potential*
12 Mo. Return
 Vanguard Short-Term Investment-Grade Inv (VFSTX)  0.91% 3.64%
 PIMCO Total Return Instl (PTTRX) 1.49 5.96
 Vanguard Inflation-Protected Secs Inv (VIPSX) 2.95 11.8

 Vanguard Total Bond Market Index Adm (VBTLX) 0.61 2.44
 Vanguard GNMA Inv (VFIIX) -0.20 -0.80
 PIMCO Real Return Instl (PRRIX) 3.44 13.76
 Vanguard Shrt-Term Infl-Prot Sec Idx Adm (VTAPX) 1.70 6.80

 Dodge & Cox Income (DODIX) 1.48 5.92
*Potential 12 Mo. Return shown is hypothetical beginning July 2020 and based on assumption that fund maintains same 3 mo. rate of return over the next 9 mos.

Typical Money
Market Fund
3 Mo. Return Potential*
12 Mo. Return
 Cash  0.03% 0.12%

Clearly, you will find that the more money you had invested in almost any bond fund, as opposed to the average money market fund, the better you did over the last three months. Since the Fed has recently reaffirmed its intention not to raise interest rates over the next several years, bond funds should have no trouble beating just holding money in cash.

The positive returns reflect the fact that many investors are tending to withdraw money from stock funds and transferring it into bonds in the face of stocks' high degree of volatility since Covid19 struck. What many analysts and investors seem to be missing in eschewing bond funds due to low interest rates is that supply and demand determine an investment's return, not just the level of interest rates. So, as long as money continues to flow into bond funds, their total return should continue to add to their meager dividend payments. And while dividend payouts are obviously important to many income seeking investors, utilizing total returns instead from their bond funds by periodically withdrawing gains from the bond funds under these circumstances, can provide a higher source of income.

As Stocks Were Dropping, I Recommended Continuing to Hold: That Turned Out to Be a Good Choice

As already mentioned, stocks started a steep descent on Feb. 20 which eventually turned into a bear market. Of course, as February came to a close, no one knew if stocks would continue to fall, or, if so, what the extent of the drop would be. However, in the March Newsletter published on Feb. 29, I advised investors to continue to hold on to stocks and not bail out. On that Feb. ending date, the Vanguard Total Stock Market Index (VTSAX) had already fallen 12.7% from its high.

Did this recommendation turn out to have been a good one? Although by March 23, VTSAX had fallen an additional 25.5%, a new bull market began the next day. So from the start of my Feb. 29 recommendation through Sept. 30, here's data showing how my recommended funds did, and showing how the average fund in its category did in comparison.

Fund (Symbol) Category Mar. thru Sept.
Category Return
 Vanguard Small-Cap Index (VSMAX) Small Blend 4.73%


 Vanguard Extended Market Idx (VEXAX) Mid-Cap Blend 13.37


 Vanguard Small Cap Growth Idx Adm (VSGAX) Small Growth 16.95


 Vanguard 500 Index (VFIAX) Large Blend 15.07


 Vanguard Equity Income (VEIPX) Large Value 2.53


 Vanguard Windsor II (VWNFX) Large Value 7.91


 Vanguard Energy (VGENX) Energy -24.42

(see Note)

 Vanguard Growth Idx (VIGAX) Large Growth 30.48 30.38

 Vanguard Pacific Index (VPADX) Pacific Asia 10.08 9.99

 Vanguard International Growth (VWILX) Foreign Large Growth 37.84

(see Note)

 Vanguard Europe Idx (VEUSX) Europe 2.13 2.03

 Vanguard Emerging Markets Idx (VEMAX) Emerging Markets 7.78


 Tweedy, Browne Global Value (TBGVX) Foreign Large Value -4.65


-All results are thru 9/30
-Vanguard Energy is no longer recommended
-Return shown for Energy category is for the Commodities category
-Return shown for Foreign Large Growth category is for the International Blend category.

As you can see, holding on to my recommended funds in almost all of the above categories proved to be a smart thing to do in spite of stocks subsequently falling into a severe bear market. The average return of my 13 recommended funds over the ensuing seven month period was 9.22%, not annualized. Only two of the 13 funds showed negative returns, one of which, Vanguard Energy, was removed from my recommended list in the Aug. Newsletter. Every one of my recommended funds did better over the period than the average fund in its category except for the Vanguard Energy Fund.

These results seem to reinforce the notion that funds often do not behave in the ways that our fears might lead us to expect and almost always bounce back no matter how bad the backdrop might appear. It further seems to show that years and years of fund picking experience can lead to category beating performance.


Update: A number of readers participated in my offer of a free evaluation of their portfolios. As far as these readers indicated, they were quite satisfied with the feedback I provided them. Others merely sent me questions about their investment decisions. (Of course, in order to evaluate an investor's portfolio, they needed to send me the details of what was currently in their portfolio.)

I consider, then, that the effort was worth it and I thank those who were willing to participate. If you have any additional feedback or questions for me, please use the email address at the head of my main web page,


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