Q2 2019 Returns By Asset Class

For the last several quarters, I’ve posted returns by asset class (by representative ETF), as well as last twelve months, last five years, and since the financial crisis lows of 3/9/2009. While there is still no predictive power in this data, I updated those charts as of the end of Q2 2019 for those of you that are interested.  Charts shown in the link below, now more readable with each on a separate page, legend at the bottom, zoom to your liking):

2019Q2 Asset Class Performance

A few call-outs from the data:

  • After a fantastic Q1 that almost erased Q4 2018 losses, Q2 2019 was another solid quarter, with only commodities (oil still struggling) in the red.  Emerging Market Bonds led the way (+5.8%), followed by US Large Cap (+4.2%), Foreign Developed (+3.2%), Aggregate US Bonds (+3.1%), US Small Caps (+2.9%), Short-term Corporate Bonds (+2%), REITs (+1.5%), and Emerging Markets (+0.8%).  Commodities finished the quarter down 1.9%.  Probably the biggest surprise was the performance of bonds, as the interest rate landscape changed dramatically, with rates falling from already historically low levels and expectations for multiple upcoming Federal reserve rate cuts getting priced in.  The US 10-year treasury bond currently trades with a yield of about 2%…  that means lending your money to the government for 10 years (!!!) to earn an annual rate equal to the inflation rate that the Federal Reserve targets.  As crazy as that sounds, rates around the globe are even lower, with many developed countries in negative territory.  Germany’s 10-year bond yields -0.32% and Japans yields -0.16%.  That means you pay the government to hold your money in those countries.
  • On the chart that shows the last 12 months, the ongoing divergence of US and non-US markets is evident with US Large Caps (think S&P 500) up over 10% and Foreign Developed flat (+0.1%).  This is explained by the relative strength of the US economy and the US Dollar vs. the rest of the global economy and other currencies.  This is even clearer on the 5-year and “since the bottom” charts.  Of course US equity valuations are much higher than the rest of the globe (i.e. the US stock market is relatively more expensive given the stronger economic outlook).  One other note is that while US Large is approaching all-time highs (and hit all time highs today, 7/1), US Small Caps have lagged dramatically, up only ~2% over the past 12 months and still well below their all-time highs.
  • In the long-term chart, you can continue to see 1) the massive outperformance of US stocks since the financial crisis, with Q4 2018’s meldown as just a blip on the radar 2) the slow and steady stable grown of bonds, and 3) the utter devastation in commodities, still down ~30% from March 2009.
Advertisements

Q1 2019 Returns By Asset Class

For the last several quarters, I’ve posted returns by asset class (by representative ETF), as well as last twelve months, last five years, and since the financial crisis lows of 3/9/2009. While there is still no predictive power in this data, I updated those charts as of the end of Q1 2019 for those of you that are interested.  Charts shown in the link below, now more readable with each a separate page, legend at the bottom, zoom to your liking):

2019Q1 Asset Class Performance

A few call-outs from the data:

  • Q1 2019 was almost as good as Q4 2018 was bad.  For Large Cap US (+16%), Small Cap US (+13.5%), and Emerging Market Equities (+12%), returns were almost the mirror image of the previous quarter.  All asset classes posted positive returns, led by Real Estate Investment Trusts (REITs) (+17.5%), which have a strongly negative correlation to interest rates and did very well as rates fell along with expectations for further Fed rate hikes.  Foreign Developed stocks were up 10.5% despite economic slowdown fears.  High-Yield (“junk”) bonds were up 7.5%.  Short-Term Corporate Bonds, Aggregate US Bonds, and Emerging Market Local Currency Bonds all held their own, up 2-3% for the quarter.
  • On the chart that shows the last 12 months, the ongoing divergence of US and non-US markets is evident.  This is explained by the relative strength of the US economy and the US Dollar vs. the rest of the global economy and other currencies.  This is even clearer on the 5-year and “since the bottom” charts.  Of course US equity valuations are much higher than the rest of the globe (i.e. the US stock market is relatively more expensive given the stronger economic outlook).
  • In the long-term chart, you can continue to see 1) the massive outperformance of US stocks since the financial crisis, with Q4’s meldown as just a blip on the radar 2) the slow and steady stable grown of bonds, and 3) the utter devastation in commodities, still down almost 30% from March 2009.

Q4 2018 Returns By Asset Class

For the last several quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts as of the end of Q4 2018 for those of you that are interested.  Since year-to-date and last 12 months are the same right now, I added a chart that shows returns since 3/9/2009 which was the S&P 500 low after the financial crisis.  Charts shown in the link below, legend at the bottom, zoom to your liking):

2018Q4 Asset Class Performance

A few call-outs from the data:

  • Q4 2018 was terrible for all risk-based assets led by declines in US Small Caps (-18.5%) and US Large Caps (-13.5%) with Foreign Developed Stocks not far behind (-13%).  Emerging markets fared somewhat better (-6.5%).  Commodities were down nearly 11%, led by a 40%+ fall in the price of oil over the course of the quarter.  Bonds outperformed by a ton, as they typically do when stocks do poorly and that’s why they’re of such value in even aggressive portfolios.  Both short-term investment-grade bonds and aggregate bonds posted slightly positive returns.
  • All asset classes were down for 2018 as a whole except short-term investment-grade bonds.  Aggregate bonds were down less than 1%.
  • In the 5-year and long-term charts you can see that foreign stocks are closing the gap somewhat with US stocks recently.  That’s coming from foreign stocks falling less than US stocks over the quarter / year.  Valuations on forward looking basis are about average now for US stocks and downright cheap for emerging stocks.  Unfortunately, that’s based on estimated earnings going forward and if there is a global economic slowdown, those earnings estimates would come down making US stocks seem more expensive and emerging markets less cheap.  No one knows if that will happen, and the market has already priced in some probability of a recession.  For more on the what’s currently plaguing the market, the risks, and the upside, please see my last post from December.
  • In the long-term chart, you can clearly see 1) the massive outperformance of US stocks since the financial crisis, with the recent fall being a fairly small give back, 2) the slow and steady stable grown of bonds, and 3) the utter devastation in commodities, still down more than 30% from March 2009.

Q3 2018 Returns By Asset Class

For the last several quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts as of the end of Q3 2018 for those of you that are interested (see below).

2018Q3 Asset Class Performance

A few call-outs from the data:

  • US stocks, especially large caps (+7.6%), led the way in Q3, with small caps a bit behind them (+4.9%).  International developed markets were slightly positive (+1.3%), with emerging markets lagging (-1.7% for both stocks and local currency bonds).  Commodities were the worst performers (-2.5%) for the quarter.  US aggregate and short-term corporate bonds finished around the flat-line, despite another hike in interest rates by the Fed (rising rates are a short-term negative for fixed rate bond funds because their value falls, though as those bonds mature, they are replaced with new bonds that pay a higher rate which makes that a long-term positive).  Overall, most diversified portfolios saw gains of a couple of percentage points with more aggressive allocations (more stocks) seeing a slightly more gains and more conservative (more bonds) being closer to flat on the quarter.
  • Over the last year, there is a wide divergence between the performance of US stocks, both large and small caps, and the rest of the world.  While it’s impossible to know the exact cause, we suspect it’s because the US tax cuts (corporate and individual) are providing a stimulus here that simply isn’t present around the globe.  The boost from those tax cuts and some deregulation has offset the negative impact of rising rates and economic uncertainty caused by building trade wars.  In other parts of the world, especially emerging markets, trade tensions and rising US rates are putting pressure on currencies and bloated budget deficits, leading to even more political instability which feeds a vicious cycle (Turkey, Argentina, etc.).  Valuations fully reflect this though, with emerging markets being the far cheapest equity asset class and fairly cheap by historical standards, and US large cap (especially growth) stocks, being the most expensive and fairly expensive by historical standards.   As I said last quarter, while everyone would love to see all asset classes moving up, a well functioning market has some dispersion in asset class performance.  The fact that US stocks can rise while emerging markets fall is a sign (at least for now) that a 2008-like meltdown is probably not on the horizon.
  • The Fed raised rates again in Q2 at their September meeting, continuing the once-per-quarter hike trend that they’ve set for the market.  The Fed Funds rate target is now 2.00-2.25%.  Futures markets show the market expecting the Fed to stay on that course for most of the next year, with an ~80% chance of one more hike this year and about a 50-50 chance of rates approaching 3% a year from now.  While increasing rates put pressure on bond prices, the advantage of shorter term bond funds is that they mature quickly and are replaced by new, higher paying bonds.  As a result, floating-rate bond funds are now yielding over 2%, with both US aggregate bonds and short-term US corporate bonds in the 3.25-3.50% range.  Emerging market bonds (in local currency) are now yielding over 7%.
  • Not much has changed from last quarter’s 5-year chart.  Commodities are still deep in the red due to big losses in 2014 and 2015.  US stocks continue to be the outperformers, with rest of the world lagging behind and trying to play catch up.  US stocks also continue to be the most expensive from a valuation perspective, with the rest of the globe, and especially emerging markets, looking cheap.

Q1 2018 Returns By Asset Class

For the last few quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts as of the end of Q1 2018 for those of you that are interested (see below).  Note that there is no year-to-date chart in this quarter since year-to-date and last quarter are the same.

2018Q1 Asset Class Performance

A few callouts from the data:

  • Most asset classes finished Q1 down between 0.5% and 1.5%.  This is a far cry from “Markets In Turmoil”, as CNBC likes to call it whenever stocks move down for a few days in a row, but it is still the first down quarter in a long time.  The standouts on both sides of the flat line were Emerging Market Bonds (+~4%), Emerging Market Stocks (+~2.5%) and US Real Estate Investment Trusts (REITS) (-~8%).
  • All asset classes other than REITs remain positive over the last 12 months, led by Emerging Markets and Foreign Developed Markets.  As I’ve pointed out quite a few times in the last few years (and as can be seen on the 5-year chart), foreign stocks a have a lot of catching up to do vs. US stocks from a performance perspective.  Of course there’s no way to know whether they will catch up with the US or if there’s good reason for their underperformance.  At least over the last year, a bit of catch-up has occurred.
  • After smooth sailing in 2017, volatility returned for Q1 2018.  You’ll notice a lot more ups and downs on the 12-month chart over the last 3 months.  What feels like a bit of a roller coaster over the last few months is actually much more normal from a historical perspective than 2017 was.
  • Bonds (short and medium term) are still up slightly over the last 12 months despite another interest rate hike by the Fed.  The Fed Funds rate target is now 1.50-1.75%.  Futures markets are pricing in another two Fed rate hikes in 2018, with about a 30% chance of three more hikes.

Q4 2017 Returns By Asset Class

For the last few quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts as of the end of Q4 2017 for those of you that are interested (see below).  Note that there is no year-to-date chart in this quarter since year-to-date and last twelve months are the same.  Instead, I just included one Full-Year 2017 chart.

2017Q4 Asset Class Performance

A few callouts from the data:

  • All asset classes displayed finished positive for 2017.  International markets led the way with emerging markets up 33% and developed foreign markets up 28%.  About 10% of this gain, is due strictly to currency fluctuations as the US Dollar finally took a breather vs. most foreign currencies in 2017.  That makes foreign holdings worth more in US dollars and juices returns a bit, offsetting some of the dollar gains / foreign losses in recent years.  Local currency emerging market bonds were up 15% for the year, due in part to the same currency impact.  As can be seen on the 5-year chart, foreign markets have a lot more catching up to do vs. the US, though there’s no way to know when that’s going to happen, or if the gap gets wider before it eventually starts to narrow.
  • US stocks continued their solid run with large caps up ~22% and small caps up ~17% on the year.  While those numbers aren’t extraordinary from a historical perspective, the lack of volatility was.  For the first time in the history of the S&P 500, all twelve months of the year had positive returns.  Don’t expect that to happen again, but if you think 20%+ returns usually means no chance of good returns the following year, you’d be mistaken.  The S&P 500 was up 20%+ 18 times since 1950 and in 16 of those times, the following year was higher (per LPL Research).
  • Bonds (short and medium term) had another positive year despite three more interest rate hikes by the Fed.  The Fed Funds rate target is now 1.25-1.50%.
  • Commodities (energy, metals, agricultural products) finished the year positive and are up substantially from their bottom in early 2016.  However, the oil crash really took its toll and as such, aggregate commodity funds are still down ~40% over the last 5 years.

Q3 2017 Returns By Asset Class

For the last few quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts as of the end of Q3 2017 for those of you that are interested (see below).

2017Q3 Asset Class Performance

A few callouts from the data:

· All major asset classes finished Q3 positive, with the standout being Emerging Market Stocks at +8%. Foreign Developed Stocks were up ~5.5% with US Large Cap and Small Cap stocks up ~4.5% each. Emerging Market Bonds were up ~3%, Commodities (led by a bounce back in oil) up ~2.5%, High Yield Bonds up ~1.5%, and Real Estate Investment Trusts, US Aggregate Bonds, and US Short-Term Bonds all up 0.5-1%.

· While everything other than Commodities has been up year-to-date, Foreign Developed and Foreign Emerging markets are the strong winners, up 20% and 23% respectively. Both continue to play catch-up vs. the US stock market after under-performing significantly since the financial crisis (and even over the past 5 years, see the 5-year chart for more detail).

· Bonds (short & medium term) continue to perform, despite being in the midst of a Federal Reserve rate hike cycle. As I indicated last quarter, higher interest rates generally mean lower prices for bonds, but this is offset somewhat by the interest (which increases with higher rates) that those bonds pay. As long as rates don’t spike quickly, and as long as we stay away from long-term bonds (we do), bonds will continue to do fine and will continue to add a cushion to overall portfolios.

· After stagnating from 2014 thru late 2016, global stocks have been on a tear over the last 12 months. US and Foreign, Small and Large are all up 17-19% with virtually no corrections along the way. This will not continue forever. I promise that stocks will fall again in the future. They will of course rise again too, but prepare yourself for lower or negative returns at some point. It’s my nature to remind clients of the bad times during the good times and vice versa. Times have been very good recently.

· Repeating from last quarter as I know not all of you have the time to read this each quarter… On the five-year chart, you can clearly see the marked underperformance of foreign stocks (developed and emerging markets), emerging market bonds, and most notably, commodities (everyone remembers the massive declines in energy prices back in 2015). While commodities have bounced back slightly after bottoming in early 2016, they have a long way to go to regain their highs, and that is a very good thing for worldwide consumers (though not so good for oil-producing / oil-exporting countries). The underperformance of international markets can be viewed in one of three ways: 1) international stocks are now dirt cheap as compared to US stocks, OR 2) international economies are doing much more poorly than the US economy and therefore, due to limited future growth, their stock markets have fairly performed much more poorly than US stocks OR 3) some combination of the two. There is no way to know the answer, so we will remain diversified and will continue to include foreign stocks at a ratio of about 1:2 vs. US stocks in most portfolios. Note that this has really paid off over the last 9 months as indicated in the 2nd bullet point above. Foreign markets will sometimes outperform their US counterparts and US markets will sometimes outperform their foreign counterparts. We just can’t know when it will happen and so instead of trying to pick winners or losers, we believe it makes more sense to invest globally and be confident that population growth + productivity growth + inflation will result in nominal growth on average across all geographies and that in turn will result in long-term growth for a globally diversified portfolio of stocks.