In a year when positive returns are widespread, the job of rebalancing is a thankless task. It’s also an increasingly burdensome one. Your editor, as a result, pines for the past.
Take 1998, for example. Now that was a year of variety. U.S. stocks, measured by the Russell 3000, enjoyed a robust 24.1% total return that year–the best among the major, broad asset classes. On the opposite extreme: emerging markets, which shed nearly 30%, as per the MSCI Emerging Markets Index. There was also a wide dispersion among the other asset classes. REITs, for instance, were down 17% in 1998 while U.S. bonds added 9.7%. Ah, yes, those were the days.
This year, by contrast, is a study is relative consistency. Save for the recently battered commodities, everything is up, as our table below reminds. And on a three-year trailing basis, even commodities show a gain, and a healthy one to boot. And who knows? Maybe OPEC will gain more respect when it comes to production cuts, helping elevate commodities’ performance into the black for 2006 after all.

Ours is not to question why, ours is but to rebalance or die (apologies to Tennyson). Unfortunately, the low-hanging fruit that availed itself in ’98 (or ’00 through ’02, for that matter) looks sparse by comparison.
To be sure, we’re not so naive as to think that a sizable loss in a given calendar year for an asset class invariably leads to a gain the next. There’s plenty of history to suggest that such a one-factor world doesn’t exist. And so we’re forced to seek out value in asset classes as well.
And we’re also mindful that momentum is a potent force too. Indeed, except for 1999, emerging markets posted losses for each an every year from 1998 through 2002. Meanwhile, REITs are on track again this year to post a gain, as they’ve done consistently for each full calendar year so far in the 21st century.
True enlightenment for the necessary task of rebalancing doesn’t come easy. Nor does it fit nicely into little tables. But past performance, while no guarantee of future return, is at least a start.