2015 has been recorded in the history book, it was a challenging year for investors. No major asset class posted double digit returns (see Table 1(i)). S&P 500 gave a Total Return (including dividends) of 1.38%, while Commodities, Gold, Emerging markets were among the worst performers, even hedge funds struggled as they all posted negative returns. And Treasury Bonds did not turn out to be a safe haven.
Holding Cash had less volatility for sure, however in 2015 it did not get anyone on a path to Financial Independence.
The pundits coming on TV, claim it lets you sleep easy at night today. It sure does, however it may lead to sleepless nights ahead when retirement arrives and Cash which has had no growth doesn’t quite get you the retirement you had in mind leading to cuts in lifestyle or other desires.
Switching focus to what drove Benchmark returns, (see Table 2(i)), one can see that we really had to be focused on the biggest of the big Large Cap stocks (i.e. Mega Cap (Top 200)) and even within the Mega Cap stocks, one had to be in the Growth Category (8.18%) because Large Cap Value underperformed (-3.41%) and even Small Cap underperformed significantly (-4.41%).
Within the S&P 500 sectors (see Table 3 below(i)), Consumer Discretionary, Healthcare and IT were the place to be invested in, while Energy and Materials were sectors to avoid.
In summary, what worked in 2015, was Mega/Large Caps, Growth oriented Consumer Discretionary, Healthcare and IT stocks while underweighting Energy, Material and Small Cap stocks. That’s pretty much what we focused on across 2015 in our blog (Top Of Mind) posts here, here, here and here.
What we didn’t get right in 2015 was the view to overweight Financials in stock portfolios – the global yield curve did not steepen as we expected, as Central Banks carried out incremental QE (e.g. Germany, Japan) which flat lined yield curves.
So what is the market outlook for 2016…
2016 is almost 4 months old and its had a rocky start. Uncertainty has been king (oil prices, negative interest rates, U.S. Presidential elections, Fed hikes) and has weighed on the market. The Bull Markets run forward will depend on how fast it lifts or if it does.
While each investor portfolio is unique and should be reviewed with an advisor for proper allocation with regard to risk tolerance and time period, we continue to recommend Mega Cap Stocks. Emphasis remains on Consumer Discretionary, Healthcare and IT sectors. While Energy and Materials have seen stabilization, continue to under-weight them along with Small Caps. We stay neutral/market weight on Financials and Staples.
On a geographical basis, U.S. and Europe should be over weighted, while Australia, Japan, Russia underweighted. Neutral on everywhere else.
In the coming posts we will talk more to the reasoning behind our commentary above OR visit our website www.onenorthstar.com and schedule a complimentary portfolio review session with us to discuss in detail.
Thank you for reading.
Past performance is no guarantee of future results. A risk of loss is involved with investments in capital markets. Please consider investment actions in light of your goals, objectives, cash flow needs, time horizon and other lasting factors.
This report is provided for informational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us.