The Year Nothing Worked

"This year is a wake-up call to think about lower returns for the next several years," notes BMO's Lowell Yura, warning that "investor expectations for both equities and bonds have been [mistakenly] elevated by recent history." According to data compiled by Bianco Research, 2015 could be the worst for asset allocation funds since World War I. Simply put, nothing worked, as for the first time since 2001, none of the major asset-classes returned more than 10%.



As Bloomberg notes, the idea behind asset allocation is simple: when one market struggles, it’s OK because an investor can benefit from another that is thriving. That did not happen in 2015...

In fact, if you judge the past year by which U.S. investment class generated the largest return, a case can be made it was the worst for asset-allocating bulls in almost 80 years, according to data compiled by Bianco Research LLC and Bloomberg. With three days left, the Standard & Poor’s 500 Index has gained 2.2 percent with dividends, cash is up less, while bonds and commodities are showing losses.




After embracing everything from Treasuries to high-yield bonds and technology shares amid seven years of zero-percent interest rates, investors found themselves with nowhere to run at a time when the Federal Reserve’s campaign of stimulus drew to an end.

Normally it isn’t like this. Since 1995, practically every year has seen some asset deliver returns exceeding 10 percent... except 2015 and 2001

According to Bianco’s study, gains from the best-performing assets had surpassed 10 percent in all but one year since 1995. During the last nine decades, 23 years, or a quarter of the total, saw at least one asset class returning more than 30 percent, and only four ended with gains smaller than 4 percent.

“The Fed stimulus lifted all boats, and then the Fed withdrawing the stimulus is holding the boats down,” Bianco said by phone. “If the argument is right that the economy is going into 2016 weak and earnings are negative, those conditions will continue and therefore on the asset allocation level, I don’t expect anything to break out just yet.”

Charts: Bianco Research, Bloomberg