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Year of volatility and meagre returns

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Story of 2015: quarter by quarter

For the year ending December 31, 2015

No firework celebrations are in order for global equities markets at the end of 2015. The S&P Global Stock Index was down 0.84 per cent on the year whilst the S&P US 500 Index was up a slight 1.37 per cent. In recent months, several hedge funds have wound up and one executive affiliated with a famous hedge fund whom I bumped into yesterday on Seven Mile Beach said his affiliated fund was down 20 per cent on the year! Another Cayman neighbour who manages his own portfolio said he was down 8 per cent for the year. No one is celebrating their 2015 investment returns.

The US Dow Jones Industrial Average fell 2.23 per cent on the year in price terms but inclusive of dividends was up a marginal 0.21 per cent. We don’t actively monitor this index because it is limited to the largest industrial companies, many of which have trade exposure which negatively affects the index during strong dollar periods. The broader S&P US index includes 504 stocks and is much more representative of the overall US stock market. The smaller cap, higher growth Nasdaq returned 7.11 per cent on the year reflective of good performance in tech and healthcare stocks.

A quarter-by-quarter comparison of S&P’s Global and US indices gives more of a story of how the markets progressed throughout the year (see Chart A).

In the first half of 2015, global stocks outperformed US stocks but in the latter half of 2015 as stock markets around the globe sold off, US stocks fared better both in the third-quarter sell-off as well in the fourth-quarter rally. US stocks scratched out slightly positive returns for the year whilst global stocks (inclusive of US stocks) were slightly negative.

For the year, Japan and the US markets were the only positive performers with Japan up 9.56 per cent leading US performance (up 1.37 per cent) by a good margin. These markets are weighted in global indices according to the dollar value of their markets so the marginal performance of the US had a greater impact on the global index than did the good performance of the Japanese market. Latin America was the worst performing regional sector (see Chart B).

In 2015, the best performing sectors in both the Global and US indices were consumer discretionary, healthcare, information technology and consumer staples although the order of performance differs (see Chart C).

In the US, consumer discretionary was the strongest sector in 2015, buoyed by blow out performance in internet and catalogue retail (up 83.46 per cent) — the star performers being Netflix (up 134.38 per cent) and Amazon (up 117.78 per cent) (see Chart D).

Globally, consumer staples was the strongest sector, up 6.85 per cent on the year, with tobacco stocks leading followed by personal products (Chart E).

Three Japanese stocks were among the top five performers — Meiji Holdings, maker of dairy and confectionery products (up 83.88 per cent on the year); Aeon Co, general merchandise stores (up 56.82 per cent); and Shiseido Co, cosmetics and beauty products (up 51.23 per cent).

The year 2015 may be characterised as a year of surprising and frustrating volatility with no consistent trend aside from the energy sector being at or near the bottom of sector performance charts. Healthcare, consumer staples, information technology, and consumer discretionary stocks fared best during the year but none of these sectors consistently performed above their regional benchmarks each quarter.

It was not a horrible year in terms of performance although the third quarter was bitterly disappointing for global as well as US markets. The good news is that the fourth quarter recovered nicely with the S&P Global Index up 5.55 per cent and the US S&P 500 up 7.03 per cent.

Robert Pires is chief executive officer of Bermuda Investment Advisory Services Ltd. He can be contacted at rpires@bias.bm .

Returns by geography: Japanese stocks fared best in 2015
Performance breakdown: by global sector
Performance breakdown: by US sector
Breakdown of the strongest sector: consumer discretionary was the top-performing US sector
Star performers: top-returning stocks in the best-performing US sector
Strongest sector: globally, consumer staples was the best-performing sector
Star performers: the top five stocks in the global consumer staples sector