Saturday, January 3, 2009 0 comments ++[ CLICK TO COMMENT ]++

2008 Asset returns

I'm sure everyone is drowining in them and I probably don't help matters much by adding to the mix but... here are the returns for various indexes last year. Since almost everything got killed, differences weren't noticeable this year so there isn't much insight this year. As usual, I only include stuff I find interesting, which may or may not be stuff that you find useful :)

(for those not familiar with the S&P indexes, S&P 500 is large cap, S&P 400 is mid cap and S&P 600 is small cap. S&P 100 is megacap.)

US markets & Style



International



S&P 500 Sectors



Bonds, Commodities, and Gold



Thoughts:


  • The equal weighted S&P 500 underperformed this year. Some claim that equal weighted indexes are better than market capitalization weighted indexes but it didn't help this year.
  • Investors should start paying attention to the high quality large caps. Jeremy Grantham, arguably one of the top macro strategists of the current era, thinks that high quality large caps will outperform the S&P 500 as well as the small and mid caps over the next 7 years. The definition of high quality would depend on one's analysis but I would assume that the S&P 100 would roughly fit that description. Last year, the S&P 100 outperformed the S&P 500 by 2%.
  • Value and growth, according to the S&P definition, performed similarly last year; but there is a huge gap of almost 10% between the worst category (large cap value) and the best (small cap value.) Value actually beat growth in the small-cap and mid-cap space but did poorly in the large-cap space. This should not be surprising because a lot of the large-cap value stocks were financials that partly caused the current crisis.
  • When it comes to select international indexes (this is not a very comprehensive list,) the best performer was the Japanese index. This should not be surprising given the unwinding of the Yen carry-trade. I actually expected the Yen carry-trade to unwind but couldn't profit properly off it (Takefuji was an attempt to increase Yen exposure but it backfired :( )
  • The S&P 500's market value declined to around $7.9 trillion from $12.9 trillion last year. That's aroung $5 trillion in wealth vaporized in the S&P 500 alone. In total, if I'm not mistaken, the world has lost around $30 trillion from stock markets. You can see why I don't believe the government intervention will make up for all this.
  • The sectors are more balanced now, with the leading ones ranging around $1 trillion whereas last year we had several (info tech and financials) worth more than $2 trillion each.
  • Best performing sector last year was, not surprisingly, consumer staples with a return of -17.66%. The worst was, of course, financials with -56.95%. Materials was a disaster while energy, even with huge decline in oil & gas prices, actually beat the market. (Incidentally, the worst performing last year was also financials with a -20.8% return. So the suffering of financial sector investors over the last several years is far greater than what the numbers show.)
  • (note: bond returns up to Jan 2 2009) The best performing major asset last year was long term US government bonds. The 20+ year bond index was up 28.94%--an amazing feat for a bond. If you were long the bonds, you basically saw a decade worth of returns in one year. On the opposite end was the corporate junk bonds, which slid 25.7%. TIPS did very poorly as deflation took hold. Contrarian position right now would be to contemplate shorting the long government bond and purchase US corporate junk bonds. However, this is still too risky right now due to deflationary threats (emnating from China, among other sources.)
  • (note: commodity returns are estimates) Commodities got decimated last year. I was bearish on commodities for over two years but didn't successfully execute (this is the problem with shorting too early: you get scared when it moves against you and you try to get out at the first chance of a small profit.) The collapse of oil may signal the end of the commodities boom. Gold had a pretty strong year with a 5% return, and may be the best performing asset in the last 10 years (I need to check.) Silver (not shown) got crushed due to it being primarily an industrial metal, although silverbugs still consider it a monetary metal. I am thinking of shorting gold (via an inverse ETF.)

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