Nothing worked in 2018
Performance of traditional asset classes
Traditional equities have had sizable losses especially in Europe and Asia (around -20%). Losses in US equity market have been smaller but the drop during November and December has been nothing less than spectacular (-18.9% from peak to trough). US treasury bonds, a safe haven by tradition, did not offer protection as central bank policy capped substantial increases in bond prices. Commodities, an asset class unloved for several years now have finally made a came back during the sellof of equity markets in the last quarter of 2018.
The first quarter of 2018: Volmageddon
The VIX index, a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options has had a rather dramatic year.
On the Friday 2th of February 2018, the S&P 500 index dropped 2.2%, a moderate correction from the elevated levels it has been during January that year (on the back of Trump’s tax cuts). What appeared that day to be a healthy correction, led to another sell-off the following Monday the 5th. That day the index dropped a hefty 4.2% with and the VIX index increased from 17% to 37%. While this level has been very big by historical standards what followed the next thirty minutes after the close was dramatic.
What happened is related to a Credit Suisse issued product named XIV, that was designed to produce the opposite returns of the VIX, a popular strategy of selling volatility for several years now. As VIX increased on that day to a record of 118% the Credit Suisse was forced to liquidate the product and realise a devastating 90% loss for its product owners. It is estimated that around $3B of losses occured from VIX related ETNs products in that day.
The fourth quarter of 2018: aggressive sell-off
The last quarter of the year has been unusual for two reasons mainly. First the sell-off was very fast. As can be seen in the table on the left, in just 79 days we reached a drop from top to bottom of 20%. Secondly, the magnitude of the drop was significant
Performance of traditional asset classes
Traditional equities have had sizable losses especially in Europe and Asia (around -20%). Losses in US equity market have been smaller but the drop during November and December has been nothing less than spectacular (-18.9% from peak to trough). US treasury bonds, a safe haven by tradition, did not offer protection as central bank policy capped substantial increases in bond prices. Commodities, an asset class unloved for several years now have finally made a came back during the sellof of equity markets in the last quarter of 2018.
The first quarter of 2018: Volmageddon
The VIX index, a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options has had a rather dramatic year.
On the Friday 2th of February 2018, the S&P 500 index dropped 2.2%, a moderate correction from the elevated levels it has been during January that year (on the back of Trump’s tax cuts). What appeared that day to be a healthy correction, led to another sell-off the following Monday the 5th. That day the index dropped a hefty 4.2% with and the VIX index increased from 17% to 37%. While this level has been very big by historical standards what followed the next thirty minutes after the close was dramatic.
What happened is related to a Credit Suisse issued product named XIV, that was designed to produce the opposite returns of the VIX, a popular strategy of selling volatility for several years now. As VIX increased on that day to a record of 118% the Credit Suisse was forced to liquidate the product and realise a devastating 90% loss for its product owners. It is estimated that around $3B of losses occured from VIX related ETNs products in that day.
The fourth quarter of 2018: aggressive sell-off
The last quarter of the year has been unusual for two reasons mainly. First the sell-off was very fast. As can be seen in the table on the left, in just 79 days we reached a drop from top to bottom of 20%. Secondly, the magnitude of the drop was significant by historical standards as it is the third biggest in the last 25 years.
Performance of active asset managers in 2018
Along with traditional assets, 2018 was not positive for active managers as well. The most recent data we have from eVestment Research is until November 2018 and it shows a rather gloomy performance profile for most asset managers irrespective of size or style. If one takes into account the particularly negative December last year it seems that actual results may be worse.
Performance of smart-beta funds in 2018
Smart beta funds are a simplified alternative to factor investing and have grown in popularity in the last ten years. In this section we show the performance of an indicative sample of such funds for each investment style.
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by historical standards as it is the third biggest in the last 25 years.
Performance of active asset managers in 2018
Along with traditional assets, 2018 was not positive for active managers as well. The most recent data we have from eVestment Research is until November 2018 and it shows a rather gloomy performance profile for most asset managers irrespective of size or style. If one takes into account the particularly negative December last year it seems that actual results may be worse.
Performance of smart-beta funds in 2018
Smart beta funds are a simplified alternative to factor investing and have grown in popularity in the last ten years. In this section we show the performance of an indicative sample of such funds for each investment style.
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