Ariel Investments’ monthly commentary for the month ended August 31, 2014 H/T Dataroma
Ariel Investments has noted before that standardized return periods, especially shorter-term ones, can unfortunately drive investors to make poor decisions. To illustrate the point, below we discuss the trailing three-year returns of the equity markets. These three-year numbers have been rising for several months, and we think they are likely to rise next month—fairly substantially, in fact. This observation is not in any way a prediction; it is based on the known past rather than on the unknowable future.
Ariel Investments: Market Outlook
Nobody knows what will happen in September 2014, but we do know what happened in September 2011. That is, a short bear market that many seem to have forgotten came to a close. Specifically, from May 1, 2011, through September 30, 2011, the S&P 500 Index fell –16.26%, the MSCI EAFE Index dropped –22.19%, and the Russell 2000 Index lost –25.10%. Many use a drop of –20% as the measurement of a bear market and largely pay attention to the large-cap market, so some view the event as a simple correction. On the other hand, Russell and other experts use a –15% drop to define bear markets; that is our standard at Ariel. Given small caps’ –25% decline alongside sharp drops globally, from our perspective it clearly merits the label of bear market.
Since its founding by Will Thomson and Chip Russell in June 2016, the Massif Capital Real Asset Strategy has outperformed all of its real asset benchmarks. Since its inception, the long/short equity fund has returned 9% per annum net, compared to 6% for the Bloomberg Commodity Index, 3% for the 3 MSCI USA Infrastructure index Read More
Whether or not you call the five-month drop in 2011 a bear market, it certainly greatly affects the current three-year return numbers. Obviously, as new monthly returns become a part of the three-year record, older months “roll off.” For this reason, stand