Commodities have been tanking lately, while REITs have be rising.  US stocks have turned up while international stocks have not — a currency effect in part.  US bonds have been weak lately (perhaps in anticipation of future rate hikes) and US stocks have risen.

click image to enlarge

This data is for a moving 52-weeks, not a calendar year, but comparison with calendar results could be interesting.

In the last 18 full calendar years, the Lehman Aggregate bond index (proxy AGG) has been down only twice (1994 and 1999, down 2.02% and 0.82% respectively).  Bonds are still up for 52 weeks, even though they have been weak lately.

In the past 16 full calendar years, the Russell 3000 (proxy IWV) has been down only 3 times (2000, 2001, and 2002, down 7.46%,  11.46%,  and 21.54% respectively). So far, 2008 seems ready to make it 4 down years out of 17, but stocks have rallied significantly as oil has tumbled and the dollar has risen.

The US Dollar (proxy UUP) is rising against a trade weighted basket of currencies and crude oil (proxy USO) is down.  Some of the fall in the price of crude is due to the rise in the Dollar, because crude is priced globally in Dollars.  However, that is a relatively minor contribution to the fall in oil.

A diversified basket of commodities (proxy DJP) is down essentially one-for-one with crude oil, although that basket did note rise one-for-one with oil.

The current environment is so unusual that it is difficult to draw too many conclusions from the past.

Richard Shaw
QVM Group LLC

When we discuss portfolios with our clients, we use the type of information provided in the tables below, and other information, as background to provide wide perspective on the current state of the markets.  You may find them useful in your own deliberations.

The first table is a list of representative funds for major categories:

US stocks (IWV)

Non-US developed stock markets (EFA)

Non-US emerging stock markets (EEM)

US equity REITs (VNQ)

Global commodities (DJP)

Aggregate US bonds (ex munis) (AGG)

US intermediate Treasuries (IEF)

Each table is sorted by 1-week returns, and presents 1-week, 3-month, YTD, 12-month, and 3-year returns.

click images to enlarge

This table presents a variety of bond funds by maturity and credit quality.

This table presents US and global stock sectors.

This table presents US stocks by market-cap and style (large-cap, medium-cap and small-cap; in both value and growth styles).

This presents all or most of the investable country funds available to US retail investors.  Some are multi-country, such as TRAMX, which is mostly Gulf Cooperation Council Countries (mostly U.A.E.), and the Vanguard Total World fund.

This presents domestic and international real estate funds, including domestic funds by property type.

This presents commodities funds based on several key indices, and funds based on narrowly focused commodity sub-indices. For some, such as solar, wind, nuclear and coal, funds of related stocks are presented (plus Cameco and Peabody as pure play uranium and coal companies respectively).

This presents single currency funds and Dollar Index funds.

Richard Shaw
QVM Group LLC

Given that we are in a period of generalized decline in many investment sectors, we reviewed a broad spectrum of ETFs and CEFs by type in terms of plausible negative outcomes, based on 3-year mean return and 3-yr standard deviation of return.

This “360 View” of plausible negative scenarios analysis looks at:

• Countries & Regions
• US Market-Cap & Style
• US & Global Sectors
• Bonds
• Real Estate
• Commodities & Energy
• Currencies

We calculated these levels of possible negative outcome:

• 3-yr mean return less one standard deviation
• 3-yr mean return less two standard deviations
• 3-yr mean return less three standard deviations

The mean return plus or minus one standard deviation of return theoretically establishes a range for about 68% of probable return outcomes.  Plus or minus two standard deviations establishes a range for about 96% of outcomes.  Three standard deviations on each side of the mean establishes a range for about 99% of probable outcomes.

In extreme circumstances, not experienced in the historical period used to develop the standard deviation, this probability approach goes pretty much out the window.  That is the “fat tail” aspect of statistics.

Whether or not the confluence of adverse resource, economic and geopolitical circumstances we are encountering now puts us in the fat tail area only the future will tell.

NOTE:  This report is not a prediction!  It is an attempt to gauge how bad it could become in the absence of the most extreme circumstances.

The results of our study are available for download by clicking the image of the report below:

Richard Shaw
QVM Group LLC

We selected the single country funds available in the Index Universe database for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each fund as follows:

• red for returns < -5%
• yellow for returns between 5% and -5% (or no data)
• green for returns > 5%

Funds with no data, were not in operation for those full years.

If you are interested in those country index funds with missing data, you may benefit by researching the index on which the fund is based to estimate how the fund might have done had it been in operation during the missing years. Don’t forget to subtract the fund expense ratio from the index return if you are estimating how the fund might have done in the years before its inception.

Click image to enlarge (dimensions 12.7 X 8.6 inches)

Richard Shaw
QVM Group LLC

We selected 70+ stock, bond and other indices for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be quite helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each index as follows:

• red for returns < -5%
• yellow for returns between 5% and -5%
• green for returns > 5%

The file is physically large at 1104 X 1075 pixels (399 Kb data size). Depending on your screen resolution you may have to scroll around the image to see all of it.

Click image to enlarge.

Richard Shaw
QVM Group LLC