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Asset Class Rotation

Why Diversify? Because Market Leadership Continually Changes.

Perhaps nothing illustrates the need for an asset allocation plan better than Asset Class Return tables. The historic performance figures for various asset classes are ranked in Tables 1 & 2, based on year-by-year annual total returns. The best performing asset class per year is listed at the top of each column. Of course, past performance does not guarantee future returns.

Diversification really is the key to a successful investment plan. True diversification is then achieved by determining the appropriate allocation to each individual asset class. A quick review of the various asset groups in Tables 1 & 2 reveals constant change in market leadership over the 22-year test period. An index that is “Hot” one year may find itself at or close to the bottom of the list the following year. Identifying key classes is the first step in creating a well-balanced portfolio. The goal, however, is mixing asset classes together to create a stable and truly diversified portfolio.

 

Table 1: Annual Returns of Key Asset Classes 1980 - 1990

Key Asset Classes 1980 - 1990. Click the image for more return details.

 

Table 2: Annual Returns of Key Asset Classes 1991 - 2001

Key Asset Classes 1991 - 2001. Click the image for more return details.

 

Key Index:

 

Conclusion:

Leading the performance list of key asset groups makes for great headlines, but it may not tell the complete story. This study also provides investors with perspective on which asset groups have historically generated annual losses. The NASDAQ leads the way producing seven losing years from 1980 through 2001. The other asset groups faired a little better, with the MSCI World Index generating six losing years; followed by the S&P 500 Index and Dow Jones Industrial Average with five; the NAREIT Equity REIT Index with four; the Lehman Brother Aggregate Bond Index with two, and the MAR Trading Advisor Qualified Universe Index rounds out the list with one year of negative performance. It is important to note that individual managers can produce results significantly different than those posted by benchmark indices.

To take advantage of the strong returns of each year’s “leader,” it is important to develop a well-balanced portfolio with investments across all asset classes. Contact Chart Research to discuss how our alternative investment products can potentially improve your investment portfolio.

COMMODITY TRADING INVOLVES SUBSTANTIAL RISKS DUE IN PART TO THE HIGHLY SPECULATIVE NATURE OF SUCH TRADING. AS A RESULT, AN INVESTMENT IN A COMMODITY TRADING ACCOUNT IS ONLY SUITABLE FOR YOU IF YOU HAVE ADEQUATE MEANS TO PROVIDE FOR YOUR CURRENT NEEDS AND PERSONAL CONTINGENCIES AND YOU CAN BEAR THE ECONOMIC RISK OF LOSING YOUR ENTIRE INVESTMENT.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.