One doesn’t need to remind the capital markets that risk is in the air. A cursory glance at the horse race for the past month among the major asset classes tells the story, which is predominantly one of espousing caution.
On the extreme ends of performance for the past month, through July 3, as the graph below illustrates, REITs continue to lead the way, racking up an impressive 3.6% rise, as per the Vanguard REIT Index Fund. On the losing end of the spectrum: commodities, which lost 3.8% over the past month, based on results from the PIMCO Commodity Real Return Strategy A Fund.
Asset class proxies: Vanguard REIT, iShares Russell 2000, iShares MSCI Emerging Markets, MSCI EAFE, S&P 500 SPDR, Vanguard High-Yield Corporate, PIMCO EM Bond, Morningstar Short Gov’t Category, PIMCO Foreign Bond, iShares Lehman Aggregate Bond, Vanguard Inflation Protected Securities, PIMCO Commodity Real Return.
After you chop off those two extremes, the range of performance among the remaining ten asset classes is quite narrow, suggesting a heightened sensitivity for embracing prudence. A mere 131 basis points separates the second-best performer (cash, as per the Morningstar Ultra Short-Term Bond Fund category) from the second-worst (TIPS).
Investors can be forgiven for expecting the proverbial second shoe to drop. With North Korean missiles flying over the Sea of Japan, threats of higher inflation lurking in the shadows, fears of slowing growth, and any number of other crises gurgling with potential, ours is a moment to reconsider the safety that comes by watching and waiting.