Tiho Brkan | Apr 25, 2014 01:22AM ET
When investing, market participants have a substantial choice of asset classes and an enormous variety of regions around the world. Investors can chose stocks, bonds, currencies, commodities, precious metals, real estate, farm land, collectables and variety of other alternative investments. Furthermore, stocks can be broken into their regions like developed markets vs emerging markets, or Asian equities vs European equities, or US equities vs Japanese equities and so forth.
If we do the similar approach to bonds, real estate, currencies and commodities, we could end up with over a hundred sub sectors. Therefore, for the sake of keeping this post short and straight to the point, I will strip the whole macro tree to just four major branches (US equities, EM equities, Gold and Treasury Bonds). These are very easy to invest with, very liquid and trade daily on the NYSE.
So with Easter behind us and April slowly coming to an end, one third of the calendar year has already passed behind us. With that in mind, I thought it would be interesting to refocus on the asset class performance of these four majors.
Chart 1: US equities uptrend vs EM equities, Bonds & Gold downtrend!
Source: Short Side of Long
Chart 1 shows us the total return of the ETFs which present S&P 500, MSCI EM Index, Gold and Treasury Long Bonds since the start of 2008. Here are a few observation I will make (but I am sure you could make more):
The last point is still true today as it was throughout the whole of 2013. US equities continue to outperform EM equities, Bonds and Gold. Chart 2 shows the rolling annualised performance of these four majors and clearly portrays the notion that US equities are “the only game in town.”
During a period from 2005-07 (not shown here) as well as 2009-11, every major asset performed decently, gifting macro investors at least some sort of positive return. On the other hand, the current period which started in 2013, has been quite a disappointment unless you hold US equities. In some instances, it is very similar to the period between 2008-09, where the only asset class that outperformed was the US Long Bond.
With every asset class going through period of underperformance, which is eventually followed by period of outperformance, the main question for global macro investor now is – how long can US equities remain “the only game in town”?
Chart 2: Since ’12 US equities outperformed EM equities, Bonds & Gold
Source: Short Side of Long
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