- The S&P 500 Index is the top performing category, up 3%, giving the impression that stocks are positive this year, even if only a modest gain. But the underlying stock market is weaker, with most categories of stocks flat or down a few percent. The S&P 500 masks this weakness since it is a weighted index, meaning that the top components of the index comprise the largest weighting in the index. For example, even though the index has 500 stocks, its top component, Apple, represents 3.6%. In fact, all of the return of the S&P 500 in 2015 can be attributable to only five stocks, Amazon (up 118%), Google/Alphabet (up 44%), Microsoft (up 19%), Facebook (up 37%) and GE (up 24%). You can see an article about this phenomenon in 2015 here.
- The S&P equal weight index is a more accurate picture of the stock market. This index, which weights all 500 stocks equally, has declined 0.4% in 2015. Broader market categories like small cap and microcap stocks are also down for the year, and averaging the categories in our chart results in basically no return for the year.
- Developed market foreign stocks match U.S. stocks, basically flat for the year. Emerging markets are in a bear market, down over 10% in 2015, due to several factors such as slowing emerging market economies (e.g China) and weak currencies versus the dollar.
- Fixed income matched the stock market almost precisely with flat returns. The Barclays Aggregate Index, the most broadly followed fixed income index, is flat in 2015. Short term treasuries were the best performers although long term treasuries were down 2%. High yield bonds are down 3.4%, in what will likely be only the fifth down year for high yield bonds since 1980.
2015 is shaping up to be a frustrating year for investors who so far this year are treading water. Hedge fund professionals fared no better as a group with the global hedge fund index (covering all possible hedge fund strategies) down 2.6%, matching the average for all our asset classes. Being in only equities or fixed income did not matter – these hedge fund segments were each down 2%. There is still another month so the final 2015 tally is unknown -- but it may likely be one of those years where short term treasuries or a one year CD will have been the best investment. But cash and treasuries are not a long term investment solution and over time will lead to a loss of wealth due to inflation. Investors should continue to maintain their allocations and their diversification even though a diversified portfolio has not helped much this year. DIA continues to recommend against investments in gold which does not provide a hedge against either weak markets or inflation, contrary to popular opinion. Fixed income investors should continue to hold onto their corporate bonds as eventually prices will recover, and in the meantime, interest continues to be generated.
This will be DIA's last blog posting for 2015. Happy holidays and we will be back in January.