Each January, we look back on the performance of nine distinct asset classes, not only for clues about which investments are unloved and undervalued, but as a reminder of how unpredictable markets can be from year to year.
Despite last year’s strong 12.0% gain for the S&P 500, four of the five best performers in 2016—small-cap (+21.3%), high-yield (+14.3%), commodities (+11.8%) and emerging markets (+11.6%)—were 2015’s worst performers, posting losses of –4.4%, –2.7%, –24.7% and –14.6%, respectively.
More importantly, over the past 15 years (2002–2016), a broadly diversified portfolio (gray box) has returned 6.9% annually, versus a 6.7% return for the S&P 500 (green box), with less volatility—11.0% versus 15.9% as measured by standard deviation. See data in far right columns.
To us, this comes as no surprise, and we don’t think there’s a better example of the importance of staying diversified, practicing regular rebalancing and focusing on the long term.