August proved to be an uncomfortable month, even for the most disciplined investors on Wall Street.
As with any swing in the market, the aftermath of a correction presents an opportunity to reevaluate and rebalance. Granted it can be quite painful for your portfolio, but there’s no denying that losing money is a good way to learn a lesson sometimes; after all, investing is a lifelong learning process.
ETF Portfolio Returns Surprises
As stocks pushed their way down on Black Monday, August 2015 was propelled into the stock market “Hall of Shame”. Perhaps that’s a little harsh, but regardless, it’s hard for your jaw not to drop when you see the volatility index (“fear gauge”) VIX spike from 12 to 53, and the S&P 500 ETF (SPY ) shed upwards of 6%, over the course of a single month. We’ve all heard of the summer slump…but this felt more like a massacre.
The table compiled below showcases some obvious, but nonetheless noteworthy, surprising ETF portfolio returns.
Please note that all of these all-ETF portfolios and more can be found on the ETFdb Model Portfolios page (trailing four-week and one-year returns as of 8/31/2015):
Let’s start with the more obvious takeaways, and keep in mind that the broad market, represented by SPY, lost 6.1% from 8/3 through 8/31, and was virtually flat over the trailing one-year period:
- The High-Tech Portfolio, a long-time outperformer in the market, fell less than half the broad market, showcasing that sometimes leaders can weather a downturn better than most.
- The Sky is Falling, Black Swan Hyperinflation, and GLD-Free Gold Bug Portfolios generated positive returns during a serious market rout.
Drumroll for the surprises please….
- The Baby Boomers, an even more impressive outperformer than High-Tech, fell nearly as much as the broad market, showcasing that sometimes leaders can get punished just as much, if not more, than the broad market. The reason is simple: investors who had amassed sizeable profits, in light of the sectors’ outperformance, used the broad market sell-off as an opportunity to take profits, which in turn was compounded by traders and computers selling as well.
- The Mining and Energy Bull Portfolios, long-time laggards, barely fell lower during a period when everything was slaughtered. The lesson here is for contrarians: sometimes your “deep value” pick can weather a storm better than most would expect. You always have to keep in mind how beaten down a security is from a longer term perspective before heading into a specific event or period of heightened volatility.
The Bottom Line
When considering the relative performance of long-time leaders and laggards during a broad-based market pullback, there are no obvious trends, which truly defines a high-volatility environment. That is to say, sometimes leaders can outperform the broad market during a sell-off, and sometimes they can be surprisingly vulnerable; and vice a versa for laggards.
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