October has a reputation for trouble when it comes to market behavior, but you wouldn't know it from looking at last month's numbers. There was minimal turbulence in asset prices in October. Aside from commodities, the major asset classes posted another solid batch of gains, building on September’s bull run. The Global Market Index (GMI) posted a 2.8% increase last month, leaving it higher on the year by a solid 12.0%.
Equities in emerging markets continued to revive in October, delivering a strong 4.9% gain that led the way among the major asset classes for the month. The pop was enough to give these stocks a small gain on a year-to-date basis and reverse most of the losses that had accumulated during a sharp correction in the spring and early summer. Meantime, commodities broadly defined are still bumping around the bottom of the performance ledger, shedding 1.5% last month. The U.S. dollar, however, managed to tread water in October, posting only a fractional loss.
The key drivers of GMI’s buoyant year-to-date results so far in 2013 are stocks in the developed world. US equities in particular have been flying, with the Russell 3000 rising nearly 27% this year through October 31. In close second place: foreign stocks in developed markets via the MSCI EAFE Index. After those two stellar returns, the results trail off rather sharply, including a fair amount of red ink for the year thus far in some corners.
In other words, underweighting in the developed world's stock markets has come with a hefty opportunity cost in 2013. By contrast, juicing allocations to these slices of the planet’s asset pie has been a red-hot winner. The question, of course, is what asset tilt will be the winning mix for the year ahead? No one knows, of course, which is why beating GMI’s passive allocation will likely remain competitive, even if the rear-view mirror implies otherwise.