Last year will be remembered for many things, but calm investment waters won’t be one of them.
One reason is that 2007 witnessed the widest range of performances among the major asset classes since 2000. On top was emerging market stocks, which soared by 36.5% in 2007. At the opposite extreme were REITs, posting a loss of 17.6%–the first down year for the asset class since 1999.
The spread from best to worst last year was a hefty 54 percentage points–the widest since 2000, proving once again that there’s always plenty of opportunity (and risk) inhabiting the investment landscape in terms of the broad asset classes.
The fact that REITs finally succumbed to the laws of gravity after seven straight calendar years of gains may or may not signal what’s coming in 2008. But if you compare the steep slide in REITs last year against the five-year bull market in emerging market equities that’s still ongoing, one can see the outline of a rebalancing opportunity.
Then again, it’s probably too early to make hasty, dramatic decisions for portfolio strategy. REITs, after all, defied gravity for seven years. The hope that they’re now poised to rally after just one down year may be asking too much. Nonetheless, as a long-term proposition, taking a bit away from emerging markets and redeploying it to REITs looks eminently reasonably, at least at the strategic margins.
Still, your editor expects that additional bargains among the asset classes will surface as 2008 unfolds and volatility continues to rise. The crowd isn’t sure if deeper economic troubles are coming, and so the odds for surprises look pretty good.