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Greenwich, CT wealth management firm Belray Asset Management has released their 2010 Asset Class Recap:
Global Public Equity (Stocks)
As they have historically done after previous recessions, small caps led other domestic equities for most of the year. The Russell 2000 almost doubled the gains of the S&P ; the Russell's eye-popping 16% in the last quarter alone almost equaled the entire 2010 gain for the tech-heavy Nasdaq. However, all four U.S. equity indices looked robust compared to the Global Dow. Though a fall rally rescued the global index from the negative returns that dogged it for much of the year, its 2010 gain was still less than half that of the Dow Industrials. Large US stocks have largely been ignored by investors and this appears to be one area of opportunity.The stock market rally doesn't mean individual investors got completely comfortable with risk, as they poured money into bond mutual funds for much of the year. Along with the Federal Reserve's determination to keep interest rates low, that helped send bond prices soaring despite massive new issuance by corporations, local governments, and the U.S. Treasury.
Debt (Bonds/Fixed Income)
However, anxiety about U.S. debt levels and the potential for future inflation paled beside European debt concerns, which nearly paralyzed global markets briefly during the second quarter. Investors worried that bailouts, which helped stave off defaults on Greek and Irish sovereign debt, might not be available in the future if larger economies such as Spain needed help. Treasuries benefitted during the summer from those concerns, but by the end of the year, bond yields were beginning to rise once again despite-or perhaps because of-the Fed's new round of quantitative easing. In November, money began to flow out of bond funds, especially from muni funds. The sharp decline in bond prices in this period gave us our first warning. Going forward this asset class is unlikely to produce the same returns that investors grew accustomed to over the past 30 years.
Real Assets (Commodities/TIPS/Real Estate)
Gold rose in tandem with anxiety about debt and currency stability. The spot price hit a new record high above $1,400 an ounce. Other commodities also did well; silver nearly doubled, and despite a dip during the summer, oil prices by the end of the year had reached $90 a barrel, a level last seen in the fall of 2008. Fears of inflation and the proliferation of ETFs have made these asset classes popular. Investors would be well served to carefully study their ability to hedge inflation risk before diving into them.
Absolute Return (Hedge Funds/Hedged Mutual Funds)
This assets class report late and will be addressed in a future email.Some content is contributed by Forefield Inc.
Days like yesterday happen for a reason, however equity investors must be ready to accept short-term uncertainty in order to capture long-term performance. Like all investors I hate watching my assets decline, but I have learned to accept it is a part of the process.The fundamental reason why investors receive a return when investing is that they take on risk. There are many ways to reduce risk, but this also reduces returns. This is the nature of investing. For example fixed income assets offer a lower expected return than equity assets (stocks) over the long-term. However, this lower return comes with lower risk, which is manifested on days like today. (High grade bonds went up today.)Investors who flee the stock market for the safety of cash, after a day like today, may experience temporary relief from market volatility. But after leaving stocks, their anxiety may shift to concern over missing a stock market rebound while sitting in cash.An investor's job is not to predict bull and bear markets, but to be positioned to capture positive performance when it occurs. This is best achieved by holding a broadly diversified portfolio that reflects one's risk tolerance and investment time horizon.-Gregory Skidmore is the President and Chief Investment Officer of Belpointe Asset Management. Belpointe Asset Management is a wealth management firm located on 125 Greenwich Ave, Greenwich, CT 06830.