Anyone who put on a long Shanghai Composite, short Brent trade on January 1, 2014, congratulations: you can now retire. However, since nobody did and instead the groupthink herd of beta-levered momentum chasers known as hedge funds were mostly long the S&P and short Treasurys, it explains why most of them generated negative returns in 2014. Here is how all the other main asset classes did in 2014, denominated both in local currency and in the soaring USD.
But first some comments from Deutsche Bank:
As far as market performance goes 2014 will likely be remembered for a few things. The amazing run in Chinese equities into year end, a strong Dollar, the ‘surprise’ rally in Treasuries, and the sell-off in Oil are some of the notable themes. Crude’s biggest annual decline since 2008 weighed heavily on US energy producers (both equity and credit). The combination of an oversupplied physical market and the best year for the Dollar since 2005 certainly didn’t help the year for Oil. That being said, despite the weakness in Energy stocks, the S&P 500 still finished the year not far off its historical highs and enjoyed its longest streak of annual gains (6 years) since the 1990s. The spread widening in energy credits had a meaningful impact on US HY which was a relative underperformer against US IG. The latter clearly also benefited from what was also the best year for Treasuries since 2011. European fixed income also had a solid year with peripheral bonds outperforming on the prospect of ECB’s QE. The performance of European equities was less impressive though with Greek equities a key laggard this year on renewed political volatility. Away from DM, lower oil, geopolitics and the outlook for the Fed Funds rate were some of the headwinds for broader EM. The EM MSCI posted its first back-to-back annual decline in 12 years whilst the Rouble had its worst year since the Russian default in 1998.
Within our selected sample of key global asset classes, the top five ‘winners’ of 2014 were Shanghai Composite (+58%), Spanish bonds (+16%), BTPs (+15%), Gilt (+15%), and the S&P 500 (+14%). On the opposite end the worst performers were Brent (-48%), WTI (-46%), Greece Athex (-29%), Portugal General (-21%) and Silver (-19%). The main chart in Figure 1 gives us a quick snapshot of the year’s performance. The chart is colour coded by the main asset classes and ranked from best to worst. Our usual performance table is also updated in the PDF for those looking for a detailed breakdown.
Local currency:
[8]
In USD:
[9]
Source: DB