Monthly Archives: January 2015

2014 Review: International Edition (01/28/2015)

Continuing with the 2014 year-in-review series, I am going to take a look at the International markets in this post. Once again, U.S. was at the top of the list followed by currency-hedged foreign ETFs (Exhibit 1). Strong dollar was a big contributor to underperformance of International markets in 2014. For example, Europe lagged 21% behind SPY and 12% of it came from the currency impact. Frontier countries did ok, but cooled off significantly from 2013. Emerging markets actually outperformed developed countries for the year, but they still have atrocious 3 and 5-year numbers.

Exhibit 1 – 2014 Performance by Region/Category

27-1

Exhibit 2 is more granular and shows the performance of single-country ETFs. At the top, Asian countries had a big bounce after a pretty brutal 2013. The basement is dominated by European ETFs as well as various emerging markets. Russia and Greece are well-documented basket cases that have been in the news lately. However, developed European nations didn’t have a great year either.

Exhibit 2 – 2014 Single Country Performance

27-2

2014 Review: Sectors & Stocks (01/15/2015)

Continuing with the 2014 year-in-review series, I am going to take a look at U.S. sectors and industries in this post. Biotech continued its strong run coming in at the top of the list (Exhibit 1). After years of trading sideways, this group took off in 2011 as investors seeking growth areas piled in. Its 5-year annualized return is double S&P 500’s. Can such a strong run continue?

Semiconductors are sensitive to the economic cycle and their continued outperformance is a bullish sign. Utilities, on the other hand, are a yield play and had a big year as interest rates unexpectedly declined. Similarly, real estate recovered from a poor showing in 2013. Transports had a good year as economy continued to strengthen and oil prices tanked.

The bottom of the table is dominated by energy and resource plays. All manner of energy stocks followed oil prices lower. After a HUGE run in 2013, solar stocks lagged as declining energy prices don’t bode well for relative attractiveness of alternatives. Gold miners had another poor showing as the dollar rose. The group now sports negative 16.2% annualized 5-year return vs positive 15.3% for the overall market (SPY).

Exhibit 1 – 2014 Performance for Domestic Sectors & Industries

26-1

Performance of one industry group this year struck me as particularly amusing and instructional. Social Media ETF (SOCL) put together a huge run (even relative to very strong SPY) from June 2013 through March 2014 (Exhibit 2). Since then it has come back to earth and is now lagging the market. The amusing part is that it topped out two weeks after Facebook (FB) agreed to buy WhatsApp for $19 billion. Many consider this deal to be a poster child for the excessive excitement over the social media / internet space (particularly in venture-backed companies). It’s another example of investors [possibly] getting carried away – that applies both to individual investors and corporate buyers (remember AOL – Time Warner merger?).

Exhibit 2 – SOCL vs SPY

26-2

Let’s take a look at the 2014 returns for individual stocks. Exhibit 3 shows 20 best performing companies in the S&P 500. It’s an interesting mixture of travel, healthcare, consumer and tech names. The laggards, on the other hand, are overwhelmingly energy plays with a few consumer story-stocks (Exhibit 4).

Exhibit 3 – 2014 Top Performing S&P 500 Stocks

26-3

Exhibit 4 – 2014 Bottom Performing S&P 500 Stocks

26-4

2014 Review: Asset Classes & Bonds (01/09/2015)

Continuing with the 2014 year-in-review series, I am going to take a look at broad asset classes in this post. Similar to 2013, domestic stocks were best performers (Exhibit 1). The dollar also had a great year with a steep advance starting in late June. Most of the fixed income investments had a decent year, while foreign stocks lagged once again. Commodities overall and crude oil in particular had a horrible year!

Exhibit 1 – 2014 Performance for Major Categories

25-1

Digging a little deeper into domestic stock market, Large Caps (particularly growth) had a great year (Exhibit 2). Midcap did ok (especially on the value side), while small companies lagged significantly. In fact, as late as December 16, Russell 2000 ETF (IWM) was negative for the year and was saved by a 6% rally in the last two weeks.

Exhibit 2 – 2014 Style Box Performance

25-2

Switching gears to fixed income, there was somewhat of a reversal of fortunes – Treasuries and Munis that got hammered in 2013 had a big rebound which came as a surprise to most (Exhibit 3). High Yield didn’t have a good year, driven by a large energy weight in the index. As oil prices took a dive in the second half of the year, stocks AND bonds (most of which are junk) of energy companies followed. International bonds came in negative but that can largely be attributed to the strong dollar. Vanguard’s BNDX which hedged its currency exposure had a pretty decent return of 8.7%.

Exhibit 3 – 2014 Performance by Fixed Income Groups

25-3

In the next post, I will take a closer look at sector performance in 2014.

2014 Review: Significant Events (01/05/2015)

It was another good year for the U.S. stocks with S&P 500 rising 11.4% (price-only, or 13.7% including dividends). Once more, it was a case of “climbing the wall of worry” for the market. A short list of scary headlines included VA hospital scandal, Ukraine conflict (including shot down Malaysia Air plane), child migrant crisis in the U.S. (and many migrant sea incidents in Europe), Israel/Gaza conflict, ISIS, Ebola, ending QE, Bill Gross leaving PIMCO, Scotland independence referendum, big oil price drop, meltdown of the Russian economy, racial tensions after Fergusson, North Korea (allegedly) hacking Sony, etc.

Exhibit 1 shows the weekly % changes in the S&P (green and red bars) and the level of the index (black line).  The annotations are the major stories of the year that affected the markets.  It’s not meant to be a comprehensive list, just my personal observations.

Exhibit 1 – 2014 S&P 500 Timeline

24-1

Despite a respectable end result, the market did have a few decent pullback during the year (Exhibit 2). The worst one came in October, just before the midterm elections. S&P almost hit the 10% threshold typically considered a correction, but not quite. So the streak continues with no meaningful correction seen since August 2011 (driven by debt ceiling fight and subsequent downgrade of the U.S. credit rating).

Exhibit 2 – S&P 500 Pullbacks in 2014 (intraday basis)

24-2

The year started off on a negative note, but weak January was followed by five positive months in a row (Exhibit 3). February, August and November were the strongest months. Interestingly, despite historically being the strongest month (September & Seasonality – Silly or Smart?), December turned in a negative return driven by high volatility in the oil/energy sector and the related economic turmoil in Russia.

Exhibit 3 –S&P 500 Monthly and Quarterly Performance in 2014

24-3

In the next post, I will take a closer look at the performance of other asset classes in 2014.