The results are in. 2018 is now half-over. A review of winners & losers in the asset class sweepstakes for H1 2018 reveals some interesting undercurrents.
Returns for June 2018
Crude oil is the sweepstakes winner, going away. The big loser, coming in last and probably still running is Emerging Market stocks. What a fall from grace for EM stocks. The darlings of the past year are now the ugly duckling.
Returns for the last 12 months
Crude oil again takes the top spot, indicating that the move is not just a bounce from depressed levels. Batting clean-up for the 12 months is U.S. Junk Bonds. I’m not sure why junk bonds did so poorly, because the spread between junk paper and Treasuries has not widened very much. It must be a numerator-denominator problem
Drawdowns from the most recent high prices
For those who are not familiar, drawdowns are the percent decline from the most recent high-water mark for an asset. The S&P 500, for example, is down about 6% from its last high, which it reached at the end of January 2018.
The most interesting data point to me is the drawdown in Crude Oil. Crude has been on fire for a full year, and yet it is still batting clean-up in the drawdown category. There is some important information in this seeming contradiction.
When an asset gets hammered like Crude, it doesn’t take much of a bounce to end up on the leader board for shorter-term time frames. This is a classic example of the squshiness (a technical term) of the arithmetic of investing. As a thought experiment, ask yourself this question. Is Crude a leading asset class, or a lagging one? These charts can support either view. That’s why I go to the trouble to track and display a variety of charts with a variety of time frames.
The takeaways
Asset classes wax and wane with the winds of the economy. It’s tough to forecast which of them might outperform over the next month, quarter, year, or decade. But we can get a sense of the shifting fortunes of each asset class by reviewing their relative performance over various time frames.
My opinion is that U.S. Equities are the place to be, at least until the wheels start to come off. Who knows when that will happen? I also like Commodities, which have been beaten down for years now, and I do not like Junk bonds.
Thanks for reading, and comments are welcome.