The pushback from the weekend’s WaPo column was surprisingly fierce.

If you can tell me what asset classes will perform best each year in advance, than by all means over-weight that sector. But if you are like the other 99.99% of investors, you are probably better off saying to yourself “Why should I guess when I can own them all?

The charts below show returns for asset classes and specifically for fixed income.


Asset Class Returns
Click for ginormous table


Fixed Income Sector Returns
Click for ginormous table
Source: J.P. Morgan

Category: Asset Allocation, Fixed Income/Interest Rates, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Looking at Asset Class Returns by Year”

  1. slowkarma says:

    Thanks for these. They look extremely useful.

  2. Jason W. says:

    What is “Asset Allocation” in the context of fixed income? The composition of the chart implies it has to do with sector allocation, which basically means active management. I’d expect that as a style to fall in the middle of the chart at the top (mixing all asset classes basically should land you near the middle), but am surprised to see it do so well in a fixed income context. Though maybe I shouldn’t be – after all, going long spread risk has generally been the active manager’s trade for years.

    • Look at the 2nd chart and see 7 different classes of fixed income

      • whatthewat says:

        But what is the % weight of each class for the asset allocations?

      • This chart shows performance by class (unweighted)

      • whatthewat says:

        The asset allocation for Fixed Income is :
        10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, and 10% in TIPS.

        The asset allocation for Asset Classes:
        25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 25% in the Barclays Captial Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index.

        If you are going to copy and paste content. at least paste the part the explains what you copied.

  3. ByteMe says:

    Barry, if you skew a sacred cow, you gotta figure it’s gonna moo and maybe try to kick you.

  4. scm0330 says:

    These asset return quilts always make for interesting discussion. But even constructing an “own everything” portfolio isn’t as easy as it may seem.

    Remember that asset classes are often biased by their composition. EAFE, and EM, to take a couple of examples, may not be the ideal way an investor wants to gain exposure to their underlying return factors. Said a little differently, an investor should look before she leaps into any index. How is it constructed, and what’s in it? Are there competing indexes with different construction methodologies that may be more suitable for an investor’s risk and return preferences? Even in the US, the S&P 500 Equal-Weight index does a fair job better, return-wise, than the cap-weighted one we all know.

    Once you’ve identified your desired asset classes, how much to allocate to each is another question I’ve never been able to answer to my satisfaction. Take the US, for example: where is it written that a small (or smid) allocation has to be smaller than the large cap allocation? Because it almost always is the case that an adviser’s strategic allocation is larger to large and smaller to small. Why? Simply because of the distribution of market cap in the index? I’ve never been able to formulate a good answer to this.

    In reality, I think a lot of recommended allocations derive from 1) cap-weighted distributions of an idealized, all-asset global portfolio combined with 2) herd thinking among advisers. Asset allocation is very much in vogue these days, and you can hardly “get fired” for it, the thinking goes. Just don’t tell Warren Buffett, who has been content to put relatively few eggs in his basket and then watch the hell out of the basket.

  5. Mike C says:

    Mebane Faber has done a lot of work on various systematic approaches to overweighting and underweighting asset classes including combinations of momentum and mean reversion. There is opportunity I think for alpha with asset class selection without having to successfully guess which asset class is going to do best in a year, and not have to accept a static blend that never changes.

  6. bear_in_mind says:

    Excellent — thanks for sharing! If you monkeys think you can whip the indexes, godspeed.