Monday, March 12, 2012

Asset Classes

Given the past few eventful weeks, I thought it would be interesting to review the state of the various asset classes. Below is a table with the 3-months returns for some ETF proxies for various asset classes.

Security3 mos return
GLD0%
OIL7.4
JJC7.7
GSC9.1
LQD4.4
JNK3.7
EMB4.4
LAG-0.2
DIA6.1
SPY9.1
VWO12
MDY10.7
PFF10.4

Notably, gold and bonds (LAG) are underperforming the other classes after tremendous outperformance last year (2011). With the good job numbers coming out in the past couple of months, the prospective for real growth is looking a little better, thus denting the appeal of gold despite the massive central bank easing through the world. Bonds, which have been looking a negative real yields for a while now, are still holding up pretty well all things considered. Of course, Operation Twist is probably still helping quite the bit.

On the outperforming side, the large-caps are doing quite well. Interestingly, preferred stocks did better than SPY, probably due to the massive overweighting of financials in the preferred universe. Financials have done very well ever since the ECB's LTRO took off. This also contributes to US midcap's (MDY) outperformance since MDY gives a 20% weighting to financials versus SPY's 16%. It is also worthwhile to note that whereas SPY is still off from its pre-recession peak, MDY has reached and exceeded its pre-recessionary peak since late 2010. In subsequent posts, I plan to dissect MDY and construct a representative sampling portfolio based on that index.

Commodities performance is quite respectable. Agriculture contributes much to the overall sector's (GSC) performance (9.1%), which happens to equal that of the S&P 500. One worrying factor is investment-grade corporates' (LQD) 0.7% outperformance of high-yield (JNK). In a purely low-yield, growth environment, JNK should be doing the best.

With China having reached the end of its tightening cycle, the emerging markets (VWO) are outperforming all other classes. Of course, VWO has also exhibited considerable volatility in the recent past.

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