U.S. stocks have worked well since the 2008/09 financial crisis. Modern Portfolio Theory – broad asset class diversification has not. But I didn’t know it was this challenging. I was somewhat surprised to see this from Bloomberg:
Endowments were hampered by investments in non-U.S. equities, which declined 7.8 percent, energy and natural resources, which lost 7.5 percent, and commodities and managed futures, which were down 7.7 percent.
Wealthier schools’ performance was dragged down by their larger allocations to riskier alternatives such as hedge funds. Hedge funds were among the worst performers for endowments of all sizes, with a 4.0 percent loss.
Endowments with more than $1 billion declined 1.9 percent, the same as the average. The blue line tracks the performance. Reflected are negative returns for 2016 and negative overall returns from 2007 – 2016:
More from Bloomberg: Endowments were hampered by investments in non-U.S. equities, which declined 7.8 percent, energy and natural resources, which lost 7.5 percent, and commodities and managed futures, which were down 7.7 percent.
It causes one to think – who needs diversification anymore? We likely need it most when the risk feels the least (like today) and need it least when the risk feels the most (like early 2000 and 2008/09).
Things just don’t smell right to me. It feels like it is 1999 all over again. This time we are witnessing a massive shift into low-fee passive (non-managed) index products. Active money managers are taking it on the chin.
However, like all that money that raced to technology funds at the market peak in the late 1990’s. The -75% tech wreck followed. That same bad behavioral trend is alive and well today. Stay risk minded. It took 15 years and a 300% recovery gain to overcome that loss and get back to even. Just saying…
