Each January the American Association of Individual Investors (AAII.com) does a review of the performance of their stock screens for the prior year.
The return performance of their many of their strategies came in well below large-cap stock benchmarks like the Dow Jones Industrial Average and the S&P 500 index.
Small-cap stocks bore the brunt of investor negativity after substantially outperforming the large-cap indexes in 2013.
Tough 2014
Actively managed strategies also lagged the large-cap indices this year, as was seen with Sigma Advantage Investment’s (SAI) Aggressive Stock portfolio’s absolute and risk-adjusted returns.
Although the portfolio’s performance is below the market returns substantially on a one year basis, the long-term performance has been better.
Even the past three year’s annualized performance is below what SAI has typically seen and is reminiscent of what I personally saw happening with my own retirement portfolio in the mid to late 2000s before the mess of 2008 occurred.
Trouble ahead?
In a talk to the Economic Club of Grand Rapids on January 12th, Alan Beaulieu of ITR Economics shared his perspective for the economy for the next several years.
ITR expects the economy to continue to grow this year and through 2016. However, he believes in 2017 – 2018 the economy will begin to contract.
The stock market tends to be forward looking, so we could begin to see some weakness in the market starting in late 2016.
When the stock market starts its descent, SAI’s strategy tends to begin to outperform the market in my opinion, since it has typically had significant downside protection and starts to take a more defensive stance as the market begins to weaken.
Portfolio outlook
Therefore, it’s possible that the SAI portfolio will perform better sometime later this year, though it may not appear until sometime in 2016.
As I have mentioned before, patience is a virtue for a reason. SAI’s portfolio may lag the market benchmark performance at or near the top side of the market, but the major downside protection is where the real gains are made against the benchmarks over the long-term.
Photo Credit: MattysFlicks via Flickr Creative Commons
DISCLAIMER: The investments discussed are held in client accounts as of January 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
