Those nifty charts that consist of colored boxes, each representing an investment class, are worth examining now and then. They show the comparative performance of asset classes over the years at one glance, tempering the temptation to stick with the flavor-of-the-day. Countries, regions, industries, strategies all go up and all come down, given time.
There are always sectors and industries that over-perform general market indexes, says David Reilly, director of portfolio strategies at Rydex Investments. He was speaking several weeks ago in the context of Rydex introducing specialized new sector funds on the American Stock Exchange. These include inverse ETFs in energy, financials, technology and healthcare that enable people to profit from a downturn without short selling or trading options. Rydex also launched leveraged ETFs, which allow investors to magnify their exposure to chosen sectors.
The general point is that the lineup always changes. Commodities were the worst performer in 1998, the Goldman Sachs Commodity Index losing 36%. That year you could make nearly 28% just by putting money into a simple S&P 500 index fund. By then many investors did not even want to hear about commodities.
The rest is not only history but a political hot spot. Commodities were the top performer in 2007, notching up almost 33% and giving rise to charges of speculation. But the colored boxes on the scorecard are already reshuffling.
Hereâ€™s another history lesson. Hedge funds are not like commodities. Hedge funds as represented by the Tremont Index were never among the bottom performers from 1998 through 2007. Neither were they at the very top; they moved around the middle. The performance of all investments shifts over time, but some sectors and strategies jump around less than others. Just another way of saying, hedge funds as a whole are less volatile.