I alluded to this in a post last week, but it’s worth expanding on the gap in performance between US equities and everything else so far in 2013. While US stocks are up more than 10%, other asset classes are showing less robust returns. Morningstar’s Core fixed income indices, which had provided equity like returns in years past, are flat to down in 2013, and even high yield is only up 2.8%. Meanwhile foreign equities are similarly weak compared to the US: the MSCI World index excluding the US is only up 4.7% in dollar terms, while the MSCI emerging markets index is down year to date. Commodities are also in a lull, with gold down 4%.
All this has contributed to some respectable but not necessarily stellar returns for a diversified asset allocation portfolio. Investors with moderate risk tolerance are likely up somewhere around 4% this year, while conservatively positioned investors may be up as little as 1%.
As we head into Q2, this mediocre performance compared to equities could be a source of consternation for advisors and their clients. The areas that are lagging are precisely the ones that most investors have pushed into in order to diversify away from US equities since the financial crisis. To complicate matters, as advisors conduct quarterly reviews, most clients will know that the Dow has made all time highs, and the discrepancy may tempt clients to chase performance. And so greed overtakes fear. Sic semper conservativis.