Major Asset Classes April 2014 Performance Review

Includes: DIA, IWM, QQQ, SPY
by: James Picerno

April was kind to the major asset classes, at least in relative terms. All corners posted gains. The big winner: US REITs, which topped the list with a strong 3.3% total return, based on the MSCI US REIT Index. In fact, US REITs have been firing on all cylinders lately — so far this year, the asset class is comfortably in the performance lead with a hefty 13.7% advance in 2014 through the end of April. In close pursuit: commodities, which have rebounded sharply this year, gaining nearly 10% via the broadly defined DJ-UBS Commodity Index. In other words, portfolio strategies with low-to-zero weights in US REITs and commodities have endured substantial opportunity costs in recent months.

US stocks, by comparison, fell to the bottom of last month’s return ledger, advancing a slim 0.1%, based on the Russell 3000. It’s worth noting that the large-cap-oriented S&P 500 is up a good deal more: 0.7% on a total return basis for April. The unusually wide difference between the benchmarks is due to the red ink in small- and medium-cap stocks, which have a bigger influence on the broadly designed Russell 3000 vs. the S&P 500′s big-cap tilt. Indeed, the small-cap Russell 2000 Index suffered a 3.9% loss last month and is off 2.8% year to date. In sum, a bias for large stocks so far in 2014 has offered a modest performance edge.

As for a strategy of broad diversification, April was a decent if unspectacular month. The Global Market Index (GMI), an unmanaged benchmark that holds all the major asset classes in market-value weights, increased 0.8% last month. For the year so far, GMI is ahead by 2.6%, or slightly better than the 2.1% rise in a broad measure of US stocks (Russell 3000). GMI’s four-month rise implies a total return of nearly 8% for all of 2014. That’s not particularly impressive based on recent history — GMI was up 14.2% in 2013, for instance. But relative to my current long-run equilibrium-based risk premium forecast for the Global Market Index, an 8% calendar-year gain looks like pretty good.