Many Happy Returns

Many Happy Returns

Posted on 16 December 2014
"...the return landscape appears remarkably positive."
This is the season when investors begin to take stock of the year quickly coming to an end. It is also the time of year for market and economic outlooks for the approaching annum. Since we are in the process of compiling our contribution to this annual industry ritual, I will refrain from any prognostications until we release our 2015 Outlook in Compass.

Equity Markets

The S&P 500 Index reaching a new high this week can’t help but prompt a survey of the landscape of returns, which is impressive. This year started with modest expectations for equities; most of Wall Street expected a single-digit return for U.S. large-cap stocks – ourselves included.[1] These forecasts were easily surpassed. If the S&P maintains the gains it achieved year-to-date, its total return will be roughly 14%. Mid-sized companies will return almost 9% on a similar basis. Even in the serially crisis-prone euro zone, the Euro Stoxx 50 Index has achieved a roughly 8.5% total return in local currency terms. Japan, despite the economic flux induced by higher taxes, has posted a total return of approximately 10.5%. While 2014 was marked by differentiated economic growth amongst the developed economies, differentiation in the direction of equity markets was absent; they generally moved higher. Even emerging markets have been able to muster a collective total return of 2.7%.[2]

Fixed Income

Within the fixed income complex, sovereign debt has enjoyed another year of strong returns. Treasuries benefited from another year of respectable gains as quantitative easing and ZIRP have provided a boon for government debt. The Bloomberg US Treasury Bond Index gained roughly 5.4% year-to-date. Euro zone sovereigns, again aided by the quantitative easing exertions of the European Central Bank, have jumped roughly 12%.[3]
Given the panoply of geopolitical and economic issues investors had to digest over the course of 2014, the return landscape appears remarkably positive.
Watch out for our Outlook edition of Compass for more insights and details.

[1] The S&P 500 Index.
[2] MSCI Emerging Market Index in U.S. dollars.
[3] As measured by the Bloomberg Eurozone Sovereign Bond Index - Price Return.
Hans Olsen, CFA Global Head of Investment Strategy

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