It's official - 2015 was a rotten year for the major asset classes. Other than a measly 2.5% total return in US real estate investment trusts (REITs) and fractional gains in US stocks and investment-grade bonds, the year just passed delivered black eyes to most of the broadly defined slices of the global asset pie. If you don't mind a round of statistical abuse, let's review the numbers.
Here's a graphical profile of returns for 2015. As you can see, the losses are widespread, varying from the sharp 25% tumble in broadly defined commodities to a slight setback for non-US stocks in developed markets (in US unhedged dollar terms).
Here's how the numbers stack up across a spectrum of trailing periods through Dec. 31, 2015.
Note the modest 1.4% loss last year for the Global Market Index (GMI), an unmanaged benchmark that holds all the major asset classes in market-value weights. The dip in 2015 for GMI suggests that most multi-asset-class strategies suffered in kind. Unless you were able to execute some fancy footwork on the tactical-asset-allocation dance floor, broadly diversified strategies probably delivered roughly flat to slightly negative results last year.
On a trailing 3- and 5-year basis, GMI continues to post modest gains in the low-5% range. But that's a substantial haircut from the returns we saw in 2014 and early 2015. Is GMI's weak run of late a surprise? Perhaps not. The Capital Spectator's long-run risk premia estimates for GMI throughout much of last year have been pointing to softer returns relative to recent history - see last month's projections, for instance.
Will the year ahead deliver something better? For the moment, Mr. Market's ex ante clues don't look especially encouraging. But expected returns - and risk - vary through time, which is a reminder that a robust system for risk-management and analysis will probably be especially valuable in the year to come.
In any case, 2016 is set to commence with a fair amount of baggage held over from last year. Let the games begin!