Well its official, 2018 was a shocking year in which to make money. Not for some time, 1972, has so many asset classes failed to deliver 5% or more in value.
In terms of absolute loses, e.g. Global Financial Crisis (GFC 2007/08), investors have incurred far worst returns than 2018, nevertheless, as far as breadth of asset classes failing to deliver upside returns, 2018 is historical.
Here is a run through the numbers:
International Equities were down around 7.4% in local currency terms in 2018:
- The US was one of the “better” performing markets, yet despite reaching historical highs in January and then again in September, had its worst year since the GFC, December was is its worst December return outcome since the 1930s.
- The US market entered 2018 on a record run, experiencing it longest period in history without incurring a 5% or more fall in value. This was abruptly ended in February.
- During the year the US market reached its longest period in history without incurring a Bear market, defined as a fall in value of more than 20%. Albeit, it has come very close to ending this record in recent months.
- Elsewhere, many global equity markets are down over 20% from their 2018 peaks and almost all are down over 10%.
- Markets across Europe and Japan fell by over 12% – 14% in 2018
- The US outperformed the rest of the world given its better economic performance.
- The New Zealand sharemarket outperformed, up 4.9%!
Commodities, as measured by the Bloomberg Index, fell over 2018. Oil had its first negative year since 2015, falling 20% in November from 4 year highs reached in October. Even Gold fell in value.
Hedge Fund indices delivered negative returns.
Global credit indices also delivered negative returns, as did High Yield
Emerging Market equities where negative, underperforming developed markets.
Global listed Property and Infrastructure indices also returned negative returns.
Fixed Interest was more mixed, Global Market Indices returned around 1.7%:
- US fixed interest delivered negative returns for the year, as did US Inflation Protected fixed interest securities. US Longer-term securities underperformed shorter-term securities.
- NZ fixed interest managed around +4.7% for the year.
The US dollar was stronger over 2018, this provided some relief for those investing outside of their home currency and maintained a low level of currency hedging.
The above analysis does not include the unlisted asset classes such as Private Equity, Unlisted Infrastructure, and Direct Property investments.
Two last points:
- Balance Bear, under normal circumstances, fixed interest, particularly longer-term securities, would perform strongly when equity markets deliver such negative returns as experienced in 2018. This certainly occurred over the last quarter of 2018 when concerns over the outlook for global economic growth became a key driver of market performance. Nevertheless, over the year, fixed interest has failed to provide the usual diversification benefits to a Balanced Portfolio (60% Equities and 40% Fixed Income). Many Balanced Portfolios around the world delivered negative returns in 2018 and failed to beat Cash.
- Volatility has increased. Research by Goldman Sachs highlights this. In 2018 the US S&P 500 Index experienced 110 days of 1%+ movements in value, this compares to only 10 days in 2017.
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