The end of 2015 was like reliving 2011 all over again. The once-stellar S&P 500 closed three-quarters of a percent lower than where it started at the beginning of the year (+1.38% total return including dividends). All around the global market was sluggish in 2015. There were a few outliers, most notably in the Health Care, Technology and Consumer Discretionary sectors. Among the worst performers were the Utility, Financial and Material sectors, with the energy sector coming in dead last (it finished at -23%, mainly attributed to oil hitting rock-bottom prices).
Anyone who remembers the fluctuations of 2011 will see the similarities between that year and 2015’s Q3 and Q4 performance. The conventional tactics of diversified investments and value buys were not much help to anyone last year, yet we submit that these investments simply haven’t realised their potential - something we expect to happen in 2016. Again, much like 2011, we believe the patient investors will come out on top.
Take a look at the year-end returns for the five major indexes:
BarCap US Agg Bond + 0.55% S&P 500 + 1.38% Russell 2000 - 4.41% MSCI EAFE (Europe) - 0.81% MSCI EM (Emerging Markets) - 14.92%
Worries of global sluggishness (especially in China), and uncertainty of the Federal Reserve’s decision on a rate hike are directly correlated to the volatility we saw in 2015. Despite this, we view the recent pullback as a pause in the ongoing bull market and that we will very likely realize the DOW reaching 20,000 at some point in 2016. We see clear opportunities in the Technology, Health, Financials, Energy, Europe and the Emerging Markets being presented. Patience is paramount - we believe that many of the investments made in 2015 will begin to show their true worth in 2016.
Q3 corporate earnings expectations have been lowered to such an extent that we expect many upside surprises. The U.S. market is performing better than spectators believe, the European market is growing, and the Emerging Markets (especially China) continue to outpace the developed world. The housing and auto sectors remain strong and we are seeing some stabilization return to the energy sector. Sloy, Dahl & Holst almost always keeps the majority of its equity positions within the U.S., however, we are looking for new leadership from the international markets in coming years. Something to keep in mind - the S&P 500 was negative for a decade, from 2000 – 2010. Global diversification will be critical over the long-term.