Asset Class Review – Does Volatility Make Things Seem Worse?

Posted on May 29, 2020 by Gemmer Asset

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With all the chaos going on the past few months, we thought it’d be worthwhile to take a step back and look at how all the major asset classes have performed over various time frames. Let’s asses the damage and see if maybe the volatility has made market returns seem worse than they really are.





The above chart shows the year-to-date performance of the major asset classes. There have been some areas of the market that experienced pain (broad based commodities, emerging market stocks, US small cap etc). But there have also been asset classes that have made gains that even during normal times would be impressive.


As yields plummeted during the crisis, bond prices rose – with long-term treasuries returning over +20% year-to-date. What really stands out on the upper half of the chart however is the NASDAQ. We’ve had the greatest economic disruption since the great depression and the index is up +4.9% this year and has just another 4% to go in order to reach an all-time high.


The S&P has also been very resilient. It’s only down -5.3% for the year and -9.9% off of its all-time high (February 19, 2020).


Since The Bottom


The bottom in the major US equity indexes occurred on March 23rd and the bounce has been quite dramatic. Here is the same chart shown above, but this time returns are from the March bottom.



The above moves have taken place over 46 trading days, all while the economic fall out and duration of the pandemic remain uncertain. A remarkable dynamic.


Comparing Current Returns with Long-Term Averages


How do these returns compare to longer-term averages? The Table below shows the average rolling 12-month return (1-month increments) for various indexes since their inception. The far-right column shows the most recent 12-month return.



The S&P 500 is very close to its long-term average, the NASDAQ is far ahead, treasuries are also faring well. High yield has a positive 12-month return. The rest of the asset classes are negative over the past year and have returned well below their historical averages – but nothing catastrophic.


What’s the Takeaway?


Let’s say for some reason you were living under a rock for the past few months and had no idea there was a global pandemic that caused a great depression-like economic disruption. The day you came out from under your rock you were shown the above table of returns. Would you panic and rush to check your investment account statement out of fear? Likely not unless you had an all US REIT portfolio. Maybe you’d shrug your shoulders and say “Huh… interesting”?


Conversely, if you’re glued to CNBC every morning and emotionally attached at the hip to the minute-by-minute market gyrations, would you be more likely to panic? I know I would. Would that panic lead to making decisions like taking your whole portfolio to cash near the March lows? If so, then you’d miss out on the bounce shown in the second chart. In both cases the returns are the returns, the only difference is how often you choose to pay attention to them.


Another way to think about this concept is by looking at the below chart. It shows every rolling 12-month return of the S&P 500 since 1990.



The red line shows the long-term average 12 month return since 1926. Notice that you almost never get the “average” return. In any given period, the return can be drastically different. In the moment, the volatility in periodic returns can make things seem either very bad or very good. Ironically, the most recent 12-month period is about as close as we typically get to the actual long-term average – and we’re dealing with a global pandemic – times certainly don’t “feel” average, but for some asset classes they are.


It’s impossible to know when the pandemic-linked volatility will subside or if March 23rd was truly the bottom. What we do know however, is that despite all the panic and CNBC “Markets in Turmoil” specials, recent returns relative to history haven’t been that bad – and in some cases, they’ve been better than long-term averages. Again, we’re certainly not out of the woods yet, but it pays to keep focus on your specific investment time horizon – not doing so exposes you to unnecessary anxiety and may cause you to make a decision that in the end will prevent you from meeting your financial goals.





Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.


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