Why Small Caps Have Underperformed in 2015
Small caps have underperformed large caps in 2015, despite low foreign exposure. While it would have made sense to overweight small caps at the start of the year, this strategy has not yielded much.
The stronger dollar has been a major headwind for large-cap earnings in the last few quarters. A stronger dollar makes US exports less competitive as the rest of the world must pay more in exchange for a dollar.
The correlation between SPY and TLT increased to -0.19 in 2015. While this correlation is still negative, you can expect it to increase over the coming months if the Fed raises rates.
Atlanta Fed president Dennis Lockhart recently stated that it would take “significant deterioration in data” for him to reject the idea of a September rate hike.
Precious metals like gold could continue to languish as rates start to rise, with the strengthening dollar and higher interest rates adversely impacting the metal.
European equities, meanwhile, at least have the cushion of strong earnings, partly fueled by the euro’s weakness.
Japan could continue to outperform US stocks this year as the economy continues to benefit from the Bank of Japan’s massive stimulus program.
As earnings reports and analyst call transcripts show, many of the companies reporting sales misses cited the strong dollar as a contributing factor.
Russ explains why he believes European and Japanese equities can continue to outperform US stocks.
To reap the benefits of an aging world, US companies need to bring in policy changes that help workers stay in the workforce and remain productive longer.
According to the Aegon Retirement Readiness Index 2015, Japan is the least retirement-ready, followed by Spain, Hungary, France, and Turkey. India is the most retirement-ready.
The longevity phenomenon has given rise to a unique problem. The world’s population is aging rapidly, which could have a negative impact on productivity and growth rates.
Bonds don’t add great returns but rather help reduce risk, provide relative stability to your portfolio’s performance, and add steady income.
The correlation between equities and high yield bonds is quite high, at +0.7. This is because both equities and high yield bonds depend on the well-being of the economy.
The Chinese sell-off sparked concerns about how the crash will affect economies all over the world. China makes up 11.3% of the global economy and is a huge consumer of resources.
Chinese equities in freefall have been worrying investors. The fall has been sudden and steep with the Shanghai Composite Index falling more than 32% from a seven-year high on June 12.
In a statement signaling that US economic recovery is on the right track, the Fed said that the economy is almost ready for gradually higher interest rates at its June meeting.
Changing demographics impact investors in many ways. The demand for bonds could increase, putting downward pressure on yields.
Lost in all the chatter about interest rates is a structural phenomenon that may be of far greater significance: demographics.
So what’s next in the Greek political drama? The next few days will most likely be extremely significant in Europe’s history. It’s finally make-or-break time for Greece.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.