SLC Management and its affiliated investment managers will offer their alternative investment strategies to the U.S. high net worth market.
Helping investors meet their current cash flow and future capital appreciation goals.
Unlimited access to our bond offerings and dedicated, personal support
Customized portfolios selected and managed by professional managers
Partnering with select institutional managers
Expert advice, ongoing trade support, and transparent pricing
An emphasis on solid investment disciplines and specific asset classes
March 04, 2024
January 29, 2024
TOP
Financial Industry Insights from Advisors Asset Management
On January 19, 2016
AAM Viewpoints - High Anxiety Markets
2015 was a challenging year with very few asset classes posting positive returns. As we stumble into 2016 the Dow Jones Industrial Average®, S&P 500® and NASDAQ® are down over 6% through the first five trading days of 2016. It can be difficult to remove emotions when making investment decisions on the best of days but recent volatility across asset classes makes it even more challenging to focus on long-term goals when the short term brings so much discomfort. Barclays Aggregate performance data illustrates the volatility across markets in 2015, which was especially acute in income-oriented investments.
Source: Barclays. Past performance is not indicative of future results.
Municipal bonds were among the top performers last year following a very strong 2014. Much like 2014, the story remains one of supply and demand as investors continue to pour money into municipals (muni) and municipal bond funds in an environment of dwindling supply. Lipper US Fund Flows data indicates investors added $1.3 billion to muni funds for the week ending Dec. 30, 2015, the most in almost a year. This marked the 13th consecutive week of inflows which is the longest streak since the end of 2014. In stark contrast to the supply side of the equation, Bloomberg data indicates 2015 was an unprecedented fifth-straight year of lower supply as net new issuance ended the year $15 billion lower than 2014. The lack of new issue municipal debt has kept benchmark yields near their lowest levels, relative to U.S. Treasuries, in more than a year. As of Friday January 8, 2015 the municipal relative value ratio versus Treasuries for 5-year maturities was at 63% while 10-year and 30-year maturities were at 83% and 92% respectively. These ratios are historically low and about 10 bps (basis points) lower across maturities from 3rd quarter of 2015 levels. Municipals were one of the few fixed income asset classes up for 2015.
The corporate bond component of the Barclays Aggregate Index was down 68 basis points last year while Treasuries were up 84 basis points. The 10-year U.S. Treasury yield finished the year higher than where is started for only the second time since 2009 as yields barely moved year over year. Bond market volatility was well above historical averages in 2015 as credit spreads widened to five-year highs. The energy and commodity complex had one of the worst years in the history of the commodities markets. The Bloomberg Commodity Index (BCOM) was down 24.7% in 2015 and off 43% since the downturn began in April 2014. 2015 marked the third year of S&P GSCI Spot Index losses which is the longest consecutive streak of down years in the history of the index. The S&P GSCI Spot Index was down nearly 53% for the period.
With weakness in fixed income markets and yield-oriented equities underperforming the balance of the equity markets, 2015 was especially rough for the income investor. Business Development Companies (BDCs), Master Limited Partnerships (MLPs), and dividend-paying equities all faced challenges during the year as headlines shifted between China, Korea, and the Fed lifting rates for the first time in 10 years. Changing expectations over the course of 2015, in regards to the direction of U.S. monetary policy, were a key catalyst driving market volatility in 2015.
So where does that leave us for 2016? The CNN Fear and Greed Index was back down to 12 on January 14th (see below) and we’ve seen $1.7 trillion in losses in the U.S. equity markets through the first eight days of the New Year.
Source: CNN Money
Market volatility could remain high in the short term with several factors continuing to exert downward pressures in global markets. These factors include:
In times such as these, unfortunately, investment decisions move from the fundamentals to a pattern more dictated by emotion. It is our belief that now is the time to remove emotion from the decision-making process and stay the course. When one year has “grinding” returns, the next year usually does not follow suit. While 2015 was a difficult year for most asset classes and 2016 is off to a rough start, exiting markets and moving to cash could prove more painful in the long term rather than staying invested. Typically time in the market trumps timing the market and staying invested, in our opinion, is generally the best approach.
Even with the volatile start to 2016 one can take away positives. We continue to see monetary accommodation of historical proportions at the global level with most central banks easing. We feel these institutions likely will be successful at their efforts to generate global growth. The yield curve has flattened but remains positively pitched. There are signs of building domestic inflation via wage growth and Core CPI (Consumer Price Index) remains near the 2% level. One of the main drivers of volatility in 2015, U.S. monetary policy, has now been removed leaving investors to focus on the long-term rate trajectory as opposed to timing. The late 2015 hike, the first in almost 10 years, signals confidence by policymakers in the strength of the U.S. economy. The U.S. economic landscape continues to improve especially with regard to the labor markets and consumer spending remains resilient. We believe these factors should contribute to improvements in fixed income and equity markets over time. We feel it is important to remove emotion, focus on long-term objectives and stay the course when everyone else seems to be heading for the door.
CRN: 2016-0119-5124R
This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at https://www.aamlive.com/legal/commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.
topics
Be the first to read our latest posts.