Below is a look at 10-year annual returns of major asset classes in 2008 and 2017. What’s notable is how an asset class deemed “today’s favorite” becomes a “dawg” a handful of years later. For example, in 2008 emerging market stocks led the pack with a 9.6 percent annualized return only to severely underperform thereafter, thus dropping to near the bottom of the pack with a 1.4 percent (10-year annualized) return in 2017.
U.S. large-cap stocks, laggards in 2008 with a negative 1.5 percent return, have had a stellar run with a climactic finish in 2017 (due in part to the Trump administration’s tax cuts) placing them near the top of the charts with a 8.5 percent annualized return.
Keep in mind, strong performance results in higher prices and richer valuations, while the reverse holds true. Using a P/E ratio based on trailing 12-month earnings, emerging markets look relatively attractive to developed markets in the U.S., Europe and Japan.
Today’s favorites will likely become tomorrow’s laggards, while assets that show strong relative value and/or have underperformed for an extended period, such as emerging markets and broad commodities, may flip the charts and be leaders of the pack.
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Robert Okada, CFA, is senior investment strategist at Johnson Bixby & Associates, LLC. Before joining JBA in 2015, Robert Okada was principal and portfolio manager at the Okada Group, where he managed multi-asset class portfolios for individual investors. In his three decades in the industry, he’s amassed an impressive resume: He’s managed client portfolios at O2 Capital Management, served as vice president in Smith Barney’s mortgage products group and was a fixed income specialist for Salomon Brothers.