Stocks Are the Only Investment Above Water in the First Half of 2015

Doing nothing is hard to do – you never know when you are finished. Leslie Nielsen

IntroductionAsset Classes- 1st half

If you’ve been hanging in there with your stock investments, you’ve done just fine so far in 2015, but not so for other asset classes.  The Russell 3000 has returned 1.9% in the first half of 2015 and EAFE has earned 5.5%. Every other asset class is near or below zero in the past 6 months. As you’ll see in the following, the S&P 500 lagged the total U.S. stock market, and EAFE lagged the total foreign market, primarily because smaller companies have performed best. Funds High Risk

The dominance of stocks over the past 5 years has given target date funds (TDFs) with high equity exposure a performance edge, and high Morningstar ratings, as shown in the graph on the right.  But TDFs should be bought for their prudence rather than their position in the performance horserace, so we’ve developed a Prudence Score for TDFs, designed specifically to help fiduciaries make more informed decisions. The best fiduciary insurance is documented prudence.

All of the US performance in the first half occurred in February, while foreign markets enjoyed a pop in both February and April. Monthly US and foreign stock market returns are shown in the next graphic.

Monthly Stock Market Returns

In the following I report on the details of U.S. and foreign stock market performance.Style Returns

U.S. Stocks

Small companies, except small cap value, have led in the half, returning 6%, while value companies have lost 2%. I use Surz Style Pure® classifications throughout this commentary. Most of the return has come from just two sectors – Health Care and Consumer Discretionary, as shown in the next graph.


Sector ReturnsHealth Care stocks have earned 13%, followed by Consumer Discretionary with a 6% return. All other sectors are near or below zero, with Energy stocks suffering the worst loss, at -5%.




Drilling deeper into US market segments, the following heat map shows performance within style-sector cross-sections, where we see that small-cap core Utility stocks have performed best with a 29.6% return, while mid-cap core Energy stocks have lost the most, with a 16.1% loss. That’s a 45% spread!

US Heat Map

Foreign StocksCountry Returns

Looking outside the US, foreign markets earned 8% in $U.S., exceeding the U.S. stock market’s 1.9% return and EAFE’s 6% gain. Like the US, smaller companies have performed best, earning 15% versus 10% for the rest of the market.

Also like the US, growth stocks have led with a 15% return, while the rest of the market has earned 6%.

The following heat maps show sector-style-country cross-sections, providing more details. As you can see, small cap growth stocks in Asia ex Japan have earned 52.6%, in contrast to 14.3% losses in Canadian industrials – a 67% spread.

Heat Maps

How to Use This Information

It just keeps getting better, until it doesn’t. Stock markets have continued their growth  this year, while other asset classes have struggled. Will these continue? Which asset classes will continue to deliver strong returns (momentum) and which will not (reversals, also known as regressions to the mean).

We all have outlooks on the economy and the stock market, and adjust our thinking as results roll in. I personally remain surprised and grateful that stocks have performed so well in the past 5 years, following the 2008-2009 meltdown; it’s been a long-term reversal.  You can use the information above to test your personal outlooks, to see which are unfolding as you think they should and which are not, with the intention to clear the haze from those crystal balls.

To learn more about Ron Surz, visit PPCA, Inc.

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