Looking at the trailing returns (as of close on June 29, 2012) of the average equity mutual fund within specifc asset classes and sectors it is eye opening how the tide has turned. For me, it is what I would have expected being that I subscribe to the mean reversion theory. Did investors really think that the S&P 500 would finish another decade down 9.1%? Perhaps investors thought it was normal for the average gold and precious metals fund to go up 765%, which they did in the period between 2002-2010. Again reverting to the mean, the average gold and precious metals mutual fund is down 31.89% since the beginning of 2011.
The steadiest asset classes and sectors over the last 10 years, 5 years, 3 years, 1 year and year-to-date have been large cap growth, real estate, consumer discretionary, health care, consumer staples and utilities mutual funds. They have have all posted positive returns and average annual returns throughout these time periods. Perhaps the most surprising is the fact that real estate mutual funds have been one of the biggest gainers of them all. I wrote about this earlier this year and it may be worth a re-visit: http://allocationforlife.blogspot.com/2012/01/real-estate-great-disconnect.html
Rebalancing, a tool which I use in all of my AFL Models, not only helps reduce volatiltiy but also enables me to take advantage of asset classes reverting to their mean. It's a pretty simple concept. If an asset class gets too far ahead of itself, then it makes sense to reduce your exposure. If an asset class falls too hard, then it makes sense to increase your exposure to that asset class. Guessing as to which asset class is going to be the next market leader is impossible, and judging by the comments out their in blog land, most investors are clueless. Stop guesssing, line up your ducks, and react based on what a portfolio has done rather than what you guess it is going to do.
Noteable is the fact that the average annual return of the S&P 500 still lags all but three asset classes, and just one sector over the last ten years. I say this is notebale because all you ever hear about is how the average mutual fund lags the S&P 500. Not quite accurate, but I have a feeling those who tout this incorrect perception may be correct come the end of this next decade. The tide is turning, but sadly most investors seem like they are poised to wait and get in near the tail end of a bull run.
Jon R. Orcutt, founder
of Allocation For Life, is an asset allocation strategist and author of “Master
the Markets with Mutual Funds: A Common Sense Guide To Investing Success”
http://www.allocationforlife.com/| YTD | 1 Year | 3 Year | 5 Year | 10 Year | |
| S&P 500 Total Return | 9.49% | 5.45% | 16.38% | 0.22% | 5.33% |
| Asset Classes | |||||
| Domestic Large Cap Value | 7.06% | 0.54% | 13.78% | -2.26% | 4.35% |
| Domestic Mid Cap Value | 6.82% | -3.23% | 16.57% | -0.44% | 6.67% |
| Domestic Small Cap Value | 6.64% | -2.45% | 17.37% | -0.24% | 6.79% |
| Foreign Large Cap Value | 2.31% | -15.13% | 5.26% | -6.51% | 5.01% |
| Foreign Small/Mid Cap Value | 5.24% | -15.08% | 9.45% | -5.74% | 7.16% |
| Domestic Large Cap Growth | 9.30% | 0.79% | 14.58% | 0.64% | 4.55% |
| Domestic Mid Cap Growth | 7.64% | -4.53% | 16.79% | 0.53% | 6.26% |
| Domestic Small Cap Growth | 7.77% | -4.93% | 17.21% | 0.21% | 6.04% |
| Foreign Large Cap Growth | 4.88% | -11.98% | 8.80% | -4.06% | 5.30% |
| Diversified Emerging Markets | 4.27% | -15.80% | 9.04% | -1.40% | 12.71% |
| Gold & Precious Metals | -14.37% | -24.02% | 7.30% | 7.63% | 14.65% |
| Real Estate | 14.29% | 11.64% | 30.90% | 2.12% | 10.22% |
| Broad-Basket Commodities | -4.25% | -13.07% | 1.97% | 2.60% | 9.96% |
| Sectors | |||||
| Consumer Discretionary | 13.43% | 7.94% | 22.71% | 1.55% | 5.24% |
| Health Care | 15.40% | 8.07% | 16.66% | 5.63% | 7.93% |
| Energy | -5.56% | -16.15% | 8.76% | -1.72% | 11.03% |
| Financials | 11.79% | -3.97% | 8.78% | -7.77% | 1.22% |
| Consumer Staples | 9.32% | 7.71% | 18.35% | 6.59% | 7.62% |
| Technology | 10.02% | -2.09% | 15.94% | 2.59% | 7.03% |
| Telecom | 5.20% | -6.04% | 12.20% | -3.15% | 7.92% |
| Natural Resources | -4.48% | -19.48% | 6.14% | -2.58% | 9.42% |
| Utilities | 4.76% | 6.26% | 13.76% | 1.11% | 8.71% |
| Industrials | 7.32% | -7.56% | 18.83% | -0.48% | 6.55% |
