INSIGHTS

On October 06, 2015

Is Your Performance Down, or is Your Opportunity Up?

The markets of 2015 undoubtedly have been a bumpy ride for investors. Although we have all heard the fear vs greed analogy, it is often too hard to look past the fear to see that elusive greed. Before you determine that your strategy is not working, you might want to take a step back and remind yourself that market sectors often come and go year to year.

The table below is calculated by Morningstar, which you most likely have seen before. It shows us the sectors of the market that outperform and underperform year after year. Although we can never determine future results from past performance, it’s interesting to watch the asset class trends.

 *Click image above to enlarge

How do you know if you are “catching a falling knife” on the downside, or positioning your portfolio to rally? The answer is a little more in-depth than what a simple chart can tell us, but the interesting thing that this chart shows is the opportunities that were present in the market. Time after time we see a bottom-performing asset class rally back and becoming a top performer the following year(s). For example, consider financials in 2011, which rallied back in 2012-2014. Or how about health care which was the worst performing asset class in 2010, only to rally back from 2011-2014.

What causes these market sectors to bounce back so high? Is it a total change in world conditions? Or could it be that the markets oversold the asset class and presented the opportunity for the rally?

We see all too often that investors become fearful when market sectors that they hold begin to underperform, which eventually leads some of them to sell into the market. This can cause continued downward pressure on the asset class and allows for confident investors to enter at distressed pricing. The job of an advisor and portfolio manager is to remove the investor’s emotion and help them to become the investor who takes advantage of oversold market sectors.

Investors might be scared of the market right now, and they might be invested into market sectors that are at the bottom of the performance grid, but if they are confident in the asset class, and confident in the companies that they hold, it could potentially pay off big time to stay the course.

CRN:  2015-1002-4973R

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.