How do asset class returns stack up on a calendar-year basis for the past 10 years? Funny you should ask–we just compiled the answer, in graphical form. It’s too wide for our front page, but you can click here to behold the horse race for each of the 10 years through the end of 2005.
Once again, it’s clear that the variation of returns is far and wide, even on a year-by-year basis. For instance, last year witnessed emerging markets stocks soar by more than 30%, while foreign government bonds in developed markets shed 9% (both in $ terms). The big-picture playing field, in sum, delivers plenty of action, even for an active trader.
Meanwhile, for the more strategic minded, more than a few trends stand out when considering asset classes in calendarial terms. That includes the realization that cash isn’t always trash, and sometimes it’s one of the better games in the house. In 1998, 2000 and 2001, in particular, 3-month T-bills posted impressive returns in both relative and absolute terms by besting half of the asset classes listed in each of those years.
Of course, the only enduring truth for the restless rotation of asset classes is, well, the restless rotation of asset classes. Something’s always winning, and something’s always losing. Beyond that, you’re on your own, other than this bit of counsel: stay diversified, keep an eye on tactical rebalancing, and sleep with one eye open.
And now, step right up and place your bets for 2006….


  1. thc

    When you refer to “tactical rebalancing” do you mean rebalancing among asset classes (stocks, bonds, cash, r/e) or are you suggesting some sort of sector rotation strategy?

  2. Jim Picerno

    My definition of tactical rebalancing is adjusting asset class weights to take advantage of some perceived short-term event or trend. The tactical weight is usually distinct from the “normal” or strategic weight, which I think of as reflecting a long-term goal, such as retirement planning for a 35-year-old. As such, a strategic weight of 60% stocks, for instance, might be reduced to a tactical 40% on the expectation of that equities were overpriced and due for a fall.

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