A Periodic Table of Returns Bonanza

MJG

Hi Guys

Callan Associates just published their annual update of the Callan Periodic Table of Returns (PTR). It now includes complete data for 2012. Their checkerboard color scheme allows for a quick assessment of market returns for an expanding list of investment categories.

The current release now incorporates 20 years worth of returns data for 9 investment categories. That’s a slight increase in data sets and longevity when contrasted against its first publication in this arena. For example, Callan now includes Emerging Market returns in their assembled data. Also, Callan has a publicity incentive to be the first among their competitors to update the market Tables. More power to them.

The Callan Link follows immediately:

http://www.callan.com/research/download/?file=periodic/free/655.pdf

It’s a standalone lesson by itself to scan the various asset categories, and see the up and down volatility in class reward ranking each year. Betting on last year’s winner is a loser’s game. Performance persistence is ephemeral. In many instances a top performer becomes the dregs of the earth the following year, and the reverse is equally likely. An investment category regression to the mean seems to be an empirical ironclad law. Trees do not grow to the sky.

The Periodic Table of Returns field is not solely occupied by Callan. Other investment houses offer both direct competing products and other versions of the Table that feature more focused data sets. I thought you might enjoy and will definitely benefit from exploring these alternate presentations. Most of the Links that I will reference have not yet made their 2012 returns data updates.

I personally treasure the Allianz Global Investors version that covers slightly different category groupings beyond the Callan work. For example, Allianz shows historic Real Estate performance; Real Estate holdings are part of my portfolio. Here is a Link to the Allianz product:

http://www.allianzinvestors.com/MarketingPrograms/External Documents/The_Importance_Of_Diversification_ACO33.pdf

Note that Allianz updates their PTR data sets more frequently (like quarterly) than their competitors do. Also Allianz incorporates a broader universe of investment classes within their presentation.

I feel we’re on a mission now. Here is a Link that summarizes Sector returns (from State Street Global Advisors) in the same format as the Callan presentation:

https://www.spdrs.com/library-content/public/US Sector Periodic Table of Returns 01.2012.pdf

Also, let’s explore commodity performance in the PTR spirit. Here is a functional Link to that somewhat dated data source from U.S. Global Investors:

http://www.usfunds.com/research/the-periodic-table-of-commodity-returns/

Tired yet? If so, you might forgo visiting the following Link (hosted by Boomerang Capital) that summarizes Hedge Fund rewards using the increasingly familiar PTR perspective:

http://boomcap.com/periodic/Periodic Table 2012-08.pdf

Plenty of style variety among slick Hedge Fund operators which generates a wide speculative performance record. And these data likely only reflect survivors and those who choose to report. Observe that this Hedge Fund summary is policy-wise updated on a monthly cycle, but, practically was last revised about 6 months ago.

I hope you examine these sundry data sources. They will serve to inform and guide your portfolio investment decisions. One caveat: I have only used Callan and Allianz regularly; therefore I can not vouch for the accuracy of several Links that I referenced.

Note the transient character of the returns and the instability within the dynamic rankings. Not much remains constant. Behavioral research scientists claim we are pattern seeking folks. Often we see patterns when none exist, which leads to bad decisions.

I suppose the good news here is that I do not see patterns within these referenced data sets. For me, they are a chaotic jumble without any plausible coherence. If you perceive a pattern within this enigmatic mess, “you’re a better man than I am, Gunga Din”. The other side of that coin is that you might be falling into the pattern recognition trap identified by the behavioral wiz-kids.

Convergent Wealth Advisors has a particularly attractive PTR presentation that provides a nice summary of asset class performance for 5-year, 10-year, 15-year, and 20-year measurement periods. The raw rankings might surprise or perhaps inspire you. Here is my final Link:

http://www.convergentwealth.com/sites/default/files/wp-content/uploads/2012/02/2011-Q4-CWA-Periodic-Table.pdf

These PTR surveys are addictive. I visit them several times every year. They might even prove to be helpful to everyone. I hope so.

Enjoy these numerous and informative PTRs. Many others with easy access that I have not mentioned in this posting are readily available to anyone inclined to search just a little.

There are not many verities that last in the investment universe. It is a dynamic world with a shortening time constant. I am astonished what incongruent interpretations are made of the PTR data sets. I have attended several investment seminars where the PTRs were used (falsely) to illustrate some fleeting momentum principle. In other workshops, they were used to backstop the need for diversity. I support this latter interpretation. Investing is often a wild ride with abrupt upsets, collisions, and detours. Diversification tames that ride.

Vigilance is the price of maintaining a portfolio. From the Bible, Prov 27:23, we read that “Riches can disappear fast. And the king's crown doesn't stay in his family forever-so watch your business interests closely. Know the state of your flocks and your herds”. That’s actionable lasting advice.

Wealth diversification is a subject the Bible addresses in several passages. For example, Solomon offered this advice in Ecclesiates 11:2 : “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on earth”. So the Bible championed the need to diversify your wealth centuries before Baron Rothschild recommended that same commonsense strategy in his famous quote to divide your holdings into three major asset classes for both hard-time and uncertainty protection.

As a sidebar, a few financial advisors, with a strong religious-based belief system, justify and endorse the Lazy-Man portfolio array monitored by MarketWatch curmudgeon Paul Farrell by referencing Solomon’s 8-piece admonishment and caution. They equate the 8-biblical pieces to a portfolio assembled with 8 investment asset classes.

Actually, the numerous Lazy-Man portfolios have much more going for them (cost containment, long term commitment, world wide diversification, delivery of historic market returns) than a tenuous allusion to Solomon’s wisdom. An internationally diversified holdings set can cut overall portfolio volatility in half while retaining expected returns at a constant level. Although correlation coefficients are never perfectly zero or negative, and are never perfectly constant over time, they always contribute to a lowering of portfolio volatility. That’s in the direction of goodness.

I wish you all happy, trouble-free, and profitable investing.

Best Regards.

MaxBialystock

Thanks. Just several words manage to say so much: "An investment category regression to the mean seems to be an empirical ironclad law. Trees do not grow to the sky." And "don't chase yesterday's high-fliers." Both statements are foundational, basic and essential lessons. I'm not afraid to get in early, into a young fund. I've done so already, more than once. Seems to me that like economics in general, maybe even like THEOLOGY (my particular career-gig) the job always, in one way or another, boils down to playing both ends off the middle. There are realities to deal with, but they are by nature not static and unmoving. Things are relative, maybe slippery is a good descriptive word--- even though, at the end of the day, we still can manage to keep our arms around this Item we're dealing with--- our portfolio. And over the long haul, in growing those portfolios, we need to have made wise choices about a fund's pedigree as well as absolute performance; its risk/reward profile; its role in our portfolio; and we must not expect olives to taste like ice cream or nuts to behave like meat.

Thanks again. Now I'm gonna go look at that thing...

Old_Joe

The Callan link is pretty interesting. It almost makes me wonder if there's not an element of randomness there... not with respect to why a particular sector did what it did in any given year (a read of the history of a particular year would probably give a pretty good idea of the "why", in hindsight) but rather the virtual impossibility of predicting what might happen in any particular future timeframe.

I think that the variables are so enormous that any attempt to "predict" more than a few weeks into the financial future just succumbs to the inherent noise. Maybe not true "randomness" as such in the financial future, but close enough to effectively operate as such.

Hiyield007

MJG, nice post and links. Funny how we are infected by our biases (both you and me) I come to a completely different conclusion than you on persistency of trend/return by looking at the top four and bottom four in the Callan link.

Edit: I would expect we would disagree because you are the most left-brained poster I have seen on this forum, while I am the complete opposite (right-brained) And that is by no means a diss, just how we are wired. Strange and may sound contradictory to you but we are in complete agreement that markets cannot be predicted or forecasted with any accuracy.

Edit#2 And then there is Sheldon Jacobs' Persistency of Performance study from his January 1996 newsletter. Later on those results.