December proved to be the only month in all of 2016 in which all of the asset classes we track ended the month in the black. Long-Only Commodities and Real Estate both recorded a 4% return in the last month of 2016, ending in the top bracket of the scoreboard.
But this 12-month view can show just how quickly things can change from year to year (something seen in our updated Callan chart). 2016 saw the previous year’s top performer, U.S Real Estate, up only 1.60% on the year, compared to U.S. Stock’s impressive performance of +11.81% in what seemed like a year prime for volatile moves and potential losses (Disclaimer: Past performance is not necessarily indicative of future results).
Meanwhile, the dog of the past few years, long-only commodities, had one of its best years in recent history (after back to back -30% performances). If you’re reading into the hype on the bounce in commodities and are thinking about investing, check how you access that sector, as you’ll probably lose money going the ETF route unless doing so on a short term basis.
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And then there’s our corner of the world, where 2016 put forward the reminder that non-correlation can mean zigging (slightly down) while other assets zagged (up). While they can (and do – see 2014) perform well alongside other asset classes, they can also perform poorly. That’s what non-correlation is. To model out that behavior means modeling in higher correlation to equity markets and the potential losing periods there.
For more on why Managed Futures performed the way they did, be on the lookout for our 2016 Strategy Review coming soon.
Asset Class Results
Source: All ETF performance data from Morningstar.com
Sources: Managed Futures = SocGen CTA Index, Cash = 13 week T-Bill rate,
Bonds = Vanguard Total Bond Market ETF (BND),
Hedge Funds= IQ Hedge Multi-Strategy (QAI)
Commodities = iShares GSCI ETF (GSG);
Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = iShares MSCI ACWI ex US Index Fund ETF (ACWX);
US Stocks = SPDR S&P 500 ETF (SPY)
Article by RCM Alternatives