Saturday, January 5, 2008 0 comments ++[ CLICK TO COMMENT ]++

The Year It Was: 2007

Here are the investment returns for various assets, styles, and sectors. If you want to do more detailed analysis on your own, a site like Morningstar is a good place to get all the information (it depends on the index system you want to use though).

I just started blogging last year and don't have a preference for using any index provider. I went with S&P indices because its spreadsheets were comprehensive, easy to access, and free. I pulled all the numbers from the S&P website, and the ETF website (Of course I used the index return rather than the ETF return). I didn't know where to get the crude oil return (a lot of them weren't updated to the end of 2007 yet) so I went with the west texas intermediate crude oil price from EIA.

Nearly all the returns are total returns in US$. With the global indices, note that some are in local currencies. For example, S&P/TSX (Canada) has a return of 9.83% but in US$ terms, you should add another 14% to get 23% or thereabouts.

First table shows US returns by style; 2nd one shows some key global markets; 3rd one is S&P 500 sectors; and the final chart contains bond and commodity returns.

The key conclusions to draw from all this are (I hope none of you have to refresh on your smaller than symbol ;) ):

  1. Market Cap: Small Cap < Large Cap < Mid Cap
  2. Investing Style: Value < Growth
  3. Best Market Cap & Style Combo: Mid Cap Growth (13.5%)
  4. Worst Market Cap & Style Combo: Small Cap Value (-5.54%)
  5. Global: Japan < USA < Europe < Asia < Latin America
  6. Sectors: Financials < Consumer Discretionary < ... < IT < Utilities < Materials < Energy
  7. Best Sector: Energy (32.38%)
  8. Worst Sector: Financials (-20.84%)
  9. Bonds vs Stocks vs Commodities: Stocks < Bonds < Commodities < Gold < Oil

The year started off well for most sectors with certain ones--financials for example--being clobbered near the end of the year. Overall, cyclicals and commodity-oriented sectors outperformed by a wide margin. Related to that, emerging markets, particularly the commodity-oriented Latin America, did extremely well. Bonds outperformed stocks, and commodities beat everything.

The trend of commodity-oriented sectors, and related markets (like Brazil, Canada, etc), doing very well has been going on for 3 or 4 years now. I've been bearish on commodities for over an year--and admittedly wrong--but it remains to be seen if the bottom falls out any time soon. The S&P Latin America 40 has a 10 year annualized return of 20.8%. Just to put this in perspective, this is Warren-Buffett-like returns for an index (admittedly a concentrated index but still).

Being a contrarian--and this is one reason I like it--Japan came in last with a negative return (-5%). It is going to be awefully interesting to see what happens in Japan this year. I am expecting the Japanese equity market to weaken while the Yen strengthens.


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