During the first ten months of 2016, we saw ample evidence making a strong case for diversification. During volatile episodes like the January stock market sell off as well as after the Brexit Vote in June, bonds provided a nice offset to losses in equity holdings. Investors in emerging market stocks and bonds also were rewarded with much more favorable returns than most other asset classes.
Following the recent U.S. election however, diversified portfolios have struggled. The perception is that a President Trump administration brings a more pro-economic growth, less onerous regulatory environment that bodes well for the U.S. stock market. Following an initial sell off in the early morning hours after the election, U.S. equity markets have moved higher, hitting all-time highs in recent weeks. Investment returns on classes other than U.S. Stocks have not followed suit, however. Expectations for stronger economic growth have caused interest rates to rise rapidly, depressing the value of bonds. A stronger dollar, as well as potential isolationist trade policies expected from the new administration have depressed international stock prices since the election.
As U.S. equity markets have moved higher and almost every other asset class has moved lower, it is understandable that diversified investors have grown frustrated. It is helpful to remember a similar environment when technology stock values were booming and many investors in diversified portfolios all recall the “tech wreck” that caused huge losses in 2000-2002. Similarly, many investors lost patience with international stocks following disappointing returns in 2010 and 2011. Those who stayed the courses were rewarded handsomely in 2012 and 2013.
While diversification has struggled in recent months, do not become disenchanted with what has been a valuable strategy throughout market history. We know in every fiber of our being that we are serving our clients well by retaining your exposure to a number of asset classes, rather than chasing current top performing sectors. As the in past, we expect that the benefits of diversified investing will re-emerge in short order.
If you’d like to discuss diversification more thoroughly or speak with an advisor, please feel free to contact us.
Opinions expressed are not intended as investment advice or to predict future performance.
All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance information is historical and indicative of future results. Past performance does not guarantee future results.